During our life time we might have encountered many problems, either be it a break-down of our automobiles or home appliances, or as personal as our retirement plans and personal wealth. Many problems can be sorted out by outsourcing to experts or specialists, while others can’t be. Can I give an example? Sure, read on!
Take a real life example here:- let’s say I need a plumber to come fix the toilet for me. Assume he’s competent and so he knows up front what the problem is, how long it takes, how much the cost is and therefore get you a fair quote for the bill before the work started.
At this stage, as a customer I have a fair estimate:
1) how much the fix is gonna cost me;
2) how long it is gonna take; and above all
3) the problem is to be solved!
The job is done, and I’m satisfied. I’m happy to pay $1000 for the result. Swell!
Now let’s say I want my retirement fund to increase by $2000 by the end of the year. When I approach a “competent” financial adviser, first he or she will give me a risk profile check, then tells me what kind of Managed Funds or Unit Trusts that may suit my profile. Before I put my money into the Managed Funds I may ask:-
1) what’s the downside? Can I get protection or insurance over it?
2) how much are the fees (mgmt fees/brokerage fees/commission/whatever-its-name);
3) how long it is gonna take; and above all
4) the problem (my portfolio to increase by $2000) can be solved.
Let’s jump straight to Point 3 & 4, say I want my wealth to be increased by $2000 in a year time. I’m sure 100% financial advisers will not, do not, and cannot guarantee this. Well some of you may say hey that’s not too bad, it’s financial market and no one can guarantee anything.
Yes that’s right, as long as it’s making profits, I’m still happy to pay commissions even though my target of $2000 is not met. What if the investments ended up a loss? Will your financial adviser give you back money? Of course not. Pretty crazy eh?
Are we able to have some kind of protection or insurance over our investments? It depends which investments you are talking about. Many managed funds recommended by financial advisers do not have any hedging facilities and thus they are not covered. Point 1 is therefore not satisfied.
How about Point 2 – the fees? Here’s how it works:- you entrust your financial adviser with your hard-earned money, you take 100% risk and if lucky you may have some leftovers (profits); meanwhile your financial adviser gets paid from you by commissions/mgmt fees regardless of the portfolio values up or down; if the values are up they’ll charge you additional performance fees; however if the values are down they’ll not give you a dime back. Fair enough eh?
My own definition for a specialist is someone with a full knowledge and thorough understanding on a well-defined subject and profession. To be titled as an expert or a specialist, he or she must be excel at solving problems.
In terms of problem solving skills I believe that plumbers are way much better than financial advisers. This is because qualified plumbers can deliver the results by getting water pipes or toilets fixed. Due to the volatility and unpredictability of financial markets, financial advisers to the best can only give you a reasonable estimate how your financial destination shall look if certain conditions applied, but these conditions seldom applied; and therefore financial advisers cannot and are not able to deliver results as solid as plumbers.
Having said these, I don’t mean we trust financial advisers no more; Rather I just wanna point out that before you hand out your hard-earned money to those so-called specialists, you’d better asked yourself: can the specialists “deliver” results or better results than you?
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