Is Your Financial Advisor Watching You Break the Rules of Prudent Investing for Fear of Losing Paychecks?

Is your financial advisor watching you break the rules of prudent investing for fear of losing paychecks?

Do you have the kind of financial advisor who’ll always tell you what’s right and refuse to see you make moves with your portfolio that are imprudent, based on your circumstances? Or is your advisor of the breed – I’d even dare to say it’s where most advisors fall these days – who lets his/her clients make all the decisions regarding their portfolios, even down to specific asset class combinations, when it’s appropriate to rebalance, and everything in between? Personally I think that’s a terrible – and incredibly unfortunate – mistake.

Now, don’t get me wrong. I’m by no means suggesting that you simply go hand over your hard-earned money to some guy or gal in a suit, sitting in an air conditioned office, and completely back off without any input whatsoever. Truth is, I wouldn’t do that with my own money, so why would I expect you to invest that way?

But here’s my point. As an investor, you must have clear and specific input and expectations regarding what you want and do not want, for that matter, when it comes to your portfolio – things like how much volatility you can live with, etc. Even if you’re not that specific, a good financial advisor must and will have a thorough discussion with you in order to understand at the deepest possible level your core vision, desires, concerns, and expectations so that he or she can help you put together the best possible portfolio to get the job done. In the end, you should know exactly why your money is invested in a certain way, what you can expect – both good and bad – and when and how changes are to be made. As a matter of fact, isn't this the exact reason financial advisers are paid in the first place?

Now contrast that with what seems to be the norm today, where the investor tells the advisor specifically what to buy or when they believe they should get in or out of specific investments. Let’s face it, most of this is based purely on emotions whipped up by what’s going on in the media.

Of course, I get it. The money belongs to the investor and he or she may decide to invest it as he or she pleases. But think about it. Would you prefer a doctor who lets you, as the patient, decide the exact prescription and dosage you should be taking?

Could it be that these so-called financial advisors who are leaving every decision completely up to the client are so concerned about maintaining their paychecks that they will do whatever makes the client feels good and happy? Are they so worried that the client might go somewhere else that they’d let them do whatever makes them happy in the moment, even if it could end up destroying the very wealth they’re trying to grow in the long run? Or it is that these advisors do not want to be held accountable for the very thing they’re paid to do, guiding clients to invest prudently, according to their specific circumstances?

Then again, if you skip the initial step I mentioned earlier and invest without having a clear-cut understanding of where you are headed and what you can expect, isn’t this the natural progression?

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