As I pointed out this post about self-serving advice from ‚Megabanks‚ it is important to check what your advisor, client relationship manager, private banker is actually proposing.
1) What will the one-off cost be of the proposed transactions (transaction costs). My point: Show me the exact figure in currency. I want to know how much of my annual/semi-annual/quarterly lunch or dinner with my banker is being paid for by the recommended changes.
2) What will the fee paid yearly by each investment product be to the issuer and/or agent (and one of the things to watch here: structured products that aren’t legally a fund, and therefor don’t show a breakdown of fees, kickbacks etc). My point: Show me the recurring fees, show me in percentage terms and currency (nominal).
3) What impact if any will the investment proposal, if executed, have on the profitability of you as a client to the advisor. ‚Megabanks‘ know to the basis point (bp = 0.01%) how much you are generating for them in absolute and/or percentage (bps) terms. Most investment proposals I see for existing clients at ‚Megabanks‘ are full of switches from one big brand name to another, switches into their own products (structured or funds).
I reckon in more than 9 out 10 cases the costs will not justify the action taken.
Regarding point 2) it’s important to realise that ‚Megabanks‘ are still advising clients to buy their products (structured or funds) and not stating what this will cost the client in a clear and upfront manner (one off, yearly).
As I showed in the example of the prospect being told to switch out of single stocks into products of the ‚Megabank‘, the advice given meant more income for the advisors employer (and therefor directly or indirectly for the advisor). The information is buried deep, in what is more or less a book (if an investment proposal has 50 pages!). When the client takes his decision he definitely will not have a mental overview of costs. This is where indepenent investment advisors on a flat fee or hourly fee can really save the customer money, by showing him alternative ways to achieve the desired risk exposure.
What can you takeaway: It can be worth paying a lawyer to check your contracts and it can also very well be worth an independent investment adivsor analysing your portfolio, your current advisors recommendations/proposals either on an hourly fee or flat fee basis.
A bank is going to try and make 10’000.- or more out of you every year, if you have 1’000’000 with them. I see it as my job with some mandates to push this much lower. As any reader of „A Random Walk Down Wall Street“ will know, there is a small probability any advice you receive from ‚Megabank‘ regarding switching will earn you more money than a passive approach.
I as an independent investment advisor don’t need to be bothered about if a client is active or not. I need to earn my money by saving the client being overactive, paying to high fees. So I protect the client from his emotions to some extent and equally important from advice others may be giving him.