This is a brief synopsis on the book Get Wise To Your Advisor: How to Reach Your Investment Goals Without Getting Ripped Off by Steven D. Lockshin (John Wiley & Sons, Inc. (C) 2013). First, allow me to mention I read the book rather casually as advisors and Wall Street are rather distant and foreign concepts to me. I was inspired to read the book after taking some personal finance and first time home buying classes with a local nonprofit. Shortly after the class I found the book while perusing library book shelves and checked it out.
The first six chapters basically deal with how and why to be careful in choosing an advisor and the many conflicts of interest and fees passed on to the customer. I felt it gave me some good tips and reinforced skepticism toward Wall Street. It offered eye-opening information on loopholes and good methods for choosing an advisor and the right questions to ask such as whether or not the assets are held in-house. Holding assets in-house allowed Bernie Madoff to perpetuate his Ponzi scheme and pay out to old customers with new customer money.
The book goes over pros and cons and explanations of fee-only planners, bank-based advisors and independent registered investment advisors (RIAs) and more. It also went into depth on why to not solely choose an advisor on the referral of a friend and or a charismatic personality alone. There are even many wealthy people do not have the best advisor, and sometimes wealthy families have a questionable advisor. It is important to be skeptical and look at the facts and results and to research and seek second opinions.
The book also explains terms such as no-load funds, exchange-traded funds, index mutual funds, actively managed mutual funds, individual stocks and bonds, and index investing. Much of the advice is sound such as diversifying and being patient and not playing with high risk investments with more than five percent of your investable assets. Bubbles such as the dot-com bubble of the late 1990s and real-estate bubble of the 2000s eventually pop and diminish investor money.
There are discount brokerages such as Charles Schwab and E*Trade. There is also software based investing (e.g. Betterment.com and Wealthfront) that can automatically rebalance market investments for you. As I am open to some practical low risk options I could do on my own without turning to the risk and mystery that surrounds advisors and Wall Street, software based investing intrigues me. Software based investing takes out the risky emotions of fear and greed in investing that lead to problems and regrets later. It is lower fee and not concerned if you have too little to invest. It is new and not fully tried and known, and therefore you should make sure the assets are held by independent custodians and insured by the Securities Investor Protection Corporation.
At the end of chapter eight the book gives you questions you can bring to an interview with an advisor. There are also links to sites such as www.advisorinfo.sec.gov to check the truthfulness of the advisor’s answers, if they have a license, and what their fees and expenses really are. It is recommended to interview at least three advisors before hiring one and compare options before making a commitment. Base decisions on fact and not emotion.
Before reading the book I was not aware how much research should be done before choosing an advisor. The information in this book is definitely worth utilizing if you are ready to have an advisor. It will save you lots of pain later. You know where you are at financially and have to do what makes sense to you. If you have to focus on debt elimination then work on that. If you want to develop a savings plan then stick with that. If it makes more sense to start with a small piece of real estate then do that. If increasing your income is the concern before you want to put some savings with an investment firm then go with that.