Warning: You May Need Investment Advice From A Real Person

Wall Street Two Signs

None of us make good decisions when we’re under stress. When we’re anxious or “under the gun”, we may not think clearly. These are the types of situations that may lead to a bad decision. When you make an investment decision, you may benefit from speaking with a financial professional.

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The argument for working with the advisor

A recent article in the Wall Street Journal points out research from Vanguard, the large mutual fund company. Vanguard’s research found that “broker and advisors perform a vital service by keeping clients invested for the long-term,

“The decision to stay invested during times of market stress swamps all other factors affecting retirement savings”. You probably need a third party advisor to keep you from selling investments when you’re panicked about a market downturn. By not selling, the theory goes, your investment returns are higher over the long-term.

Different compensation, different standards

There are several different levels of responsibility that financial advisors must follow. How the advisor is compensated is related to the level of responsibility the advisor has to the client.

InvestmentNews points out the proposed fiduciary rule for advisors who work with individual retirement plans. The new standard would require reps to “act in the best interest of clients”. The Secretary of Labor points out that advisors would need to “put their client’s best interest above their self-interest”.

Now, on the surface, that seems logical. However, this fiduciary standard is higher than the current standards for many advisors. In fact, commission-based compensation on retirement accounts may be banned. Reps may only be able to receive compensation on retirement business by charging an annual “wrap fee”. These fees are based on asset under management.

Unintended consequences

The investment industry argues that the higher fiduciary standard would increase regulatory and legal costs for the profession. Advisors would shift to the wrap fee model to cover the additional costs and risks. In addition, some reps may stop doing retirement plan business, given the lower dollar amounts invested vs. the new risk levels.


Investors who previous paid a one-time commission for retirement account investments would now be assessed an annual wrap fee. Over time, the cost to invest may be higher.

Most important, the Labor Secretary suggests that small investors may be better served by using computer-programmed advice delivered by email or text message. Would this service keep a panicked investor from selling during a market crash- ultimately hurting their investment’s rate or return?

The cost may be worth it

Even if you are starting as an investor, it may be worth it to pay a “real live” advisor for advice. That person can help you make intelligent decisions when you’re under stress. Consider using an advisor to get some peace of mind about your investments.

Have you found a great working relationship with a financial advisor? I’d love to hear from you.

Ken Boyd

Author: Cost Accounting for Dummies, Accounting All-In-One for Dummies, The CPA Exam for Dummies and 1,001 Accounting Questions for Dummies

Co-Founder: accountinged.com

(email) ken@stltest.net

(you tube channel) kenboydstl

Image: Terrapin Flyer, Wall Street (CC BY-SA 2.0)

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