How a $95,000 Loss Could Have Been Avoided

We have a client who decided to self-manage about half of his investment assets while we are investing the other half. He decided to do this for two reasons.

First, he wanted to use a different system which he had read about. To us, it sounded something similar to Market Timing – being fully invested or all in cash, one or the other.

The second reason is he had received comments from his accountant that they had never seen someone pay a financial advisor like us so much in fees.

Over the last 18 months, we estimate this client has lost almost $95,000. This is a combination of real losses he has experienced in the account he has been managing himself, and the increased value of the account we managed.

Basically, he ended up getting whip sawed in the volatility of the market which caused him to lose trust and confidence in following his system.

All of this was done against our recommendation when it comes to experimenting with a new investment system. We don't have a problem with anyone experimenting with a new or different investment system compared to ours. But we always recommend starting with a very small account, not half of your investment assets.

He also got some bad input from his accountant who obviously doesn’t really understand investment advice fees and expenses. We don't know the accountant and have not spoken with him yet. I’m guessing he is comparing expenses with traditional brokerage firms like Morgan Stanley, Merrill Lynch, Wells Fargo, and so forth. In our experience, when we show people who have accounts with institutions like this, more often than not they're shocked at how much money they're actually paying in hidden fees and expenses compared to using a firm like ours.

Had we known about our client's accountant's comments earlier on, we would have reached out to the accountant and asked for specific examples of other situations which gave the accountant the impression our client was paying large fees and expenses. In reality, our clients typically pay no more when it comes to fees and expenses compared to the large brokerage firms and in most cases, they're paying significantly less, sometimes 60 to 70 per cent less. Most people are surprised to find out our total fees and expenses typically run no more than what someone would pay buying no load mutual funds and managing the account themselves receiving little or no advice.

The take away from all of this is: the true cost of financial advice should not be a cost at all. It should be an investment and one that you receive many times over. I can assure you that in the example I've just shared with you, the $95,000 in losses and missed profit opportunities, is nowhere near what our fee would have been had they been using our investment management services on all of their monies.

Had they been paying our full fee, in this case, they would have received a return 10 times what they would have paid us.

The only thing worse than no advice, is poor advice, which was what happened in this situation. Don't let it happen to you.