Stock Brokers Vs Investment Advisors and Financial Planners

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If you are a “do it yourselfer” this article isn’t for you. These days it’s gotten to the point where people who are looking for the right investment advise have way to many options and are more confused then ever. This article is going to straighten things out for you once and for all, and with simplicity. The question I want you to think about before you pick a professional to manage your money is, in my opinion, split three ways.

Over more than the last 25 years there have been more then enough changes in the financial industry to make your head spin. Hedge funds, ETFs, Specialty funds, etc.

To start with, this article has no intention of discussing the “do it yourselfer investors”. If I had a nickel for each person who told me they made money by doing it themselves I’d be a billionaire and living on a beach sipping Corona.

The reason I’m able to write this article is because I’ve sat in each of these three seats.

When I came out of university more than 22 years ago I knew I wanted to work in the Investment Industry. When I came out of university I knew exactly what I wanted to be. A stock broker! I applied to many of the large firms here in Toronto and each time I was told I was to young and had to start off as an Advisor but could as an assistant to some big producing Advisor. I had no intention of being some assistant, I wanted to be a broker who held two phones up to his ears, buying and selling stock.

I finally found a small firm that was exactly like I wanted. After a painfull period of sales traning, I and my classmates were given today’s hot research on what stocks to buy and what stocks to sell. It seemed these small firms loved guys like myself, because we had a ton of energy and wanted to make a ton of money in our first few years and beyond.

With research in our hands we were literally given the phone book and told to hit the phones. We were told to make call after call after call, until we found someone interested. Once we found this person we were told to give a short one liner about the stock and then ask for a 50,000 dollar investment. Being just out of school, I didn’t give this a second thought. I thought this was the way the game was played. Everytime the prospect said he couldn’t afford the money you gave him another reason to buy the stock and then ask for less money. Order sizes ranged from 5,000 dollars to 50,000 dollars. Everytime a prospect went for 50,000 dollars you kicked yourself because he could have gone for more.

This was a great gig. Everyday we would cold call like animals and make nice fat paycheques at the end of the week. I did this for approximately 8 years until I was finanly burnt right out.

It was at this point that I decided I was going to apply once again to a few of the big brokerage firms in Toronto. Because I had a ton of sales experience under my belt I got offers from the big three firms I applied to. The offers were not for assistant positions anymore, they were for Investment Advisor positions. I picked the firm with the best reputation in Toronto and was promptly put into their advisor traning class. These classes were a big eye opener for me. The main topic we were taught was about financial planning. This simply meant that to help a person reach or come close to their goals, we had to build a portfolio which had a mix of bonds, equity and cash. On building one of these plans we had to document every piece of information revolving around a client’s goals and risk tolerance, and this also had to be documented on something called a KYC(know your client). Coming out of traning some advisors used individual stocks to fill the equity component. I knew from my broker days this was a problem just waiting to happen. When you received your research in the morning you would pick the stocks that said “strong buy” and would also be given a price target it would hit. It was classic to see that when the market bell went off at 9:30am, negative information would come out about the stock and it would drop like a stone. At the closing bell the same reseacher would come out with a sell recommendation on the stock. This was only after you lost your client a good buck on the stock.

Knowing this game all to well, I decided to take a different approach. I would first sit down with a client and their significant other and we would discuss their risk tolerance. I did this by building my own 3 page document about the risks surrounding different investments and how they could effect their financial goals. God forbid the firm I was with had a similar document. In my opinion this document did two things. Number one, it helped my clients make up their own minds about how they would like to be invested risk wise, and number two, it would keep me out of trouble with the portfolio and the compliance department. On the bond side I would only purchase funds that contained good quality government bonds as well and highly rated corporate bonds, after all, this was the conservative side of the portfolio. On the equity side I would only purchase good quality equity mutual funds that were diversified throughout the very strong area’s around the world.

On the service side, I would send out my custom investment newsletter each month and contact my clients every quarter by phone to review their portfolio’s and make any slight adjustments if needed. Every six months I would actually visit them in person to review the portfolio and agree on rebalancing if needed. When we originally were discussing the portfolio and their goals, we determined how much went into bond funds and equity mutual funds based on their anwsers to my risk assessment questionaire. What would happen, is as time wore on the percentages that were placed in each category, from our original mix, would get out of wack. To ensure that their plan continued on track we had to rebalance the funds to bring us back to it’s original mixture. In a nutshell this is how I conducted my business and it ran like a well oiled machine.

The main problem with this machine was that the stock market didn’t cooperate all the time. As we all know, we have experienced some huge downturns in the market over time, especially a few years ago. The reality is that, if your time horizon is many years into the future, you’ll be able to ride out these downturns and the market will comeback better then ever. These words seem very easy to say when in 2008/2009 the market was down somewhere in the neighbor hood of 40-50%. Some people saw their investments cut in half. These tended to be people who mostly invested in stocks and had not done a risk assessment and didn’t hold conservative things like bonds that prevented their portfolio’s from going anywhere near the market bottom and thus bounced back very easily. Through all good and bad times I had setup a business for all seasons and just kept it running this way because I was doing the right thing for the client and despite it being a cliche, I got great satisfaction from helping them towards their goals.

Everything sounded to good until the manager tapped me on the shoulder one day and asked me into his office. He said grab a seat and let’s talk. Feeling good about my business I felt I was only going to hear positive things. That feeling was soon deflated when he said to me that I wasn’t making enough revenue for the branch. Taken aback I told him that if he had all of his advisors doing the same things as me he would never run into trouble with compliance(which he had before) and would only be doing the right things for the clients and still making a halfway decent paycheque. He wanted me to make more money off my client’s. This meant moving them into investments to make more commission and hopefully keep the client in their correct asset mix. After a lot of thought, I decided I wasn’t going to dismantle a client’s portfolio just to make him more money. The next day I went into his office, closed the door and sat down. I went over every way I helped my clients work towards their goals and only with good quality investments. I told him that I may be making less then the guy in the office who traded stocks everyday but I was doing the right thing for the firm and more importantly, doing the right thing for the client and I wasn’t going to do anything that would tarnish either. He stood up (all five feet five inches) and said that if that was the case that he was sorry and he had to terminate my employment.

This happened right around the time I was breaking up with my girlfriend of 10 years, closing on the sale of my condo and moving into a new place. It was a great time to say the least.

Previous to quitting my job, I had seen the manager of the branch going around the office and speaking to people about the fact they weren’t generating enough revenue off their clients. Because of this I saw the writing on the wall and started to interview with a few different brokerage firms and Investors Group. Knowing that it always takes a few months to go through the motions of getting hired, I was sweating it out knowing that I had only so much money in the bank and a few mortgage payments ahead of me, never mind my other personal expenses. The reason I mention the name of Investors Group was they were always looked down on from the brokerage level. Ironically it was Investors Group that was the first to offer a position as a Consultant. Don’t let the title “Consultant” fool you. I quickly learned that Investors Group didn’t just offer a line up of mutual funds, but they also did Insurance Planning, Estate Planning, Mortgages, Tax Planning, Advanced Financial Planning and income planning. These services were right at our finger tips. Compared to the brokerage business, Investors Group did actual financial planning, not just investment planning. If I could help a client with a mortgage, there was a mortgage specialist right in the office. If I needed help putting together an insurance plan, there was an insurance specialist right in the office. One of the small ironies was that Investors group had a two page booklet which contained twenty questions and determined what type of investor the prospect was. I had been doing this with my own booklet for years before IG. Once the prospect’s profile was established I had them sign the booklet attesting to their profile. Because we had products here that were called fund of funds. This simply meant that there was a mutual fund that contained a number of other mutual funds. You could buy a fund that was conservative and right up to aggressive. Based on the risk level of the client you could just slide them right into the fund that matched their risk profile they had agreed and signed for. This made my life even easier. Once they were in the fund I didn’t have to change any investments or rebalance the portfolio. The fund did all of this. All I had to do know was keep in touch with my clients quarterly and and visit them semi-annually.

While continuing to bring in new client’s I came across a business owner who had a large net worth. The only problem was that he had personal money out side of his business, but also had a good deal of money tied up in the business. His situation was very complex and I would usually give up on a prospect like this because of that. What he wanted was tax advise and a financial plan that dealt with his tax situation and financial goals for the future. The first thing I did was send an email with all his tax questions to our tax planning department who, in short order, sent back all the solutions to his tax questions. I then sent these solutions and his investment goals to our advanced financial planning department. After a few days, I received a plan that contained all the elements he was looking for. After the planning department guided me through the plan, I made an appointment with the prospect and went out to see him in a week’s time. After I had arrived and started with some small talk I presented the plan to him. I had suggested that he ask me any questions he had along the way, but he didn’t say a word, which made me very nervous. After I had finished I asked him what his thoughts were and he said point blank, that after all the advisors he had met with, none of them had offered a plan as fantastic as this. Needless to say, he signed all the documents to open the account and transfer all of his investments. Out of this he ended up referring me to three other business owners in the same industry

The ironic thing was that the plan also questioned his Personal Insurance planning, Business insurance planning and Mortgage planning. From all these area’s, plus his investments, I made a very nice income, enough to pay off a good portion of my mortgage and have a lot left over to live on.

There it is. A very simple bottom line. Despite Investors Group being looked down upon, they are simply the Best firm on the street, hands down. It only took me 20 years to find them and I’m so sorry I didn’t start with them right out of University.

So, to answer the question of, should I go with a broker, Investment advisor or Financial Planner, it’s a Big yes to going with a Financial Planner. They have all the resources to solve all of your financial planning!!

Source by Brad Leon

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