Tuesday, March 8, 2011

What Do You Expect From Your Financial Adviser?

Last week, a friend that I know who has a successful business came into my office to talk to me about his investment options. He told me about the risk adverse nature of his spouse and how she was scared to lose money. He currently was invested in CD's at the local credit union and wanted to know if I could do anything better than the 1% or so he was currently receiving. I told him "No. I cannot offer anything that is risk free and pays better than 1% and is relatively short term in maturity."

He was surprised at my honesty. He went on to talk about wanting to pay off his mortgage and asked for my advice on the best way to pay it off. I referred him to a chapter in my book that shows how to use a home equity line of credit and your checking account together to pay off the mortgage without any additional out of pocket. It is a strategy whereby you deposit your paychecks into the home equity line of credit, then twice a month, you move the money out of the home equity line back into your checking account to pay bills. It takes a little discipline, but the end result is that your money is working all the time. Most people do not realize that home equity lines of credit are charged interest that is compounded daily. Therefore, when you put money into a home equity line of credit account, you are credited daily also. So, instead of having your money sit in a checking account earning nothing, you are putting 100% of your income cash flow to work reducing debt.

This strategy works like a charm. It just takes some discipline and you need free check writing that is also unlimited check writing without any fees. In addition, you need to have the ability to move money instantly online between your home equity line of credit and your checking account. If you can do this, then you are all set. For more details, see my book, Keep Your Assets. Take My Advice.

Back to my story. The end result of our meeting was that I did what was in this person's best interest. This is what I do. An unethical adviser would never pass up the opportunity to open a new account. They would have said anything to get this person to open an account and make promises around risk that they could not keep. I am different however. I heard him say that his spouse does not want to lose or risk their money. My response was a honest response related to his needs.

A few days later, this same person came back to see me again. He wanted to thank me again for being honest with him and telling him the truth. He also said that I was exactly the kind of person that people need to be their financial adviser. To me, this was a real compliment. It is great to receive validation that there are some things more important than making money at the expense of others. I suspect that I may receive a referral or two from this person in the future as a result of our interaction. Before he left, he said that "we will do business together in the future."

This is an example of what I mean when I describe the differences between registered investment advisers who do things in a client's best interest and banks, Wall Street firms and insurance agents who are bound by their contract to sell products that benefit their firm and themselves. A registered representative or insurance agent would not have done this with this person. Why? Because they have to generate revenue to keep their job, so they will say whatever it takes to get a new account that they can generate revenue on.

Is this sinking in yet? There is a difference in financial advisers. Can you see it?