 Financial Advisors, Not a troll |
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  Feb 18 2007, 11:15 AM
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#1
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Target  Group: Members Posts: 68 Joined: 11-May 02 Member No.: 2,723  |
1. I don't mean to offend anyone. If I do, I'm sorry.
2. I thought I might shoot down one of my prejudices: Why exactly does anyone trust a person to give him financial advice on investing money? If the person knew anything reliable about that, why would he not make his money by investing? In my SR games such advisors have a reputation nearing that of a televangelist because of bad precedent. That is, they have some fanatical believers, but anyone with half a brain despises them. (Hey, I once revered Kostolany myself. Well, I was fourteen years old, and Kostolany's writing motivation was not likely royalties.) 3. Again, no offense intended. |
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Feb 18 2007, 12:50 PM
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#2
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Incertum est quo loco te mors expectet; Group: Dumpshocked Posts: 6,546 Joined: 24-October 03 From: DeeCee, U.S. Member No.: 5,760 |
Who says the advisors don't make money by investing? That said, certain advisors are not allowed to invest, if they're too close to the market. I don't know the precise rules, though. Keep in mind that an advisor makes maybe $70k a year, if he has a few years of experience. A GOOD advisor makes millions. This is his salary, not from investments. Investments can range from 5-9% increase generally. So for him to make $70k, he'd have to have about a million dollars tied up in the market, and that's money that's at more risk than his regular salary. So it's not any better an idea for him to work full time investing his money than it is for you to do it.
Investors also oftentimes take a cut of the money. Some make a flat fee for managing your accounts, some get a percentage. Those who get a percentage clearly do make money off the market. The difference is they just don't have the initial capital. From what I understand in the real world, small time investors get the bad advisors. They'll recommend stocks which are "safe bets", or maybe that benefit the company some other way. The advisor doesn't make enough off small time investors for it to be worth his money to fritter away good tips and serious time on them. Big investors are a different matter, and the company is willing to dedicate a lot of resources to squeezing out that last tenth of a percent, so they get the best analysts they can. |
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Feb 18 2007, 12:56 PM
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#3
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Runner Group: Members Posts: 3,066 Joined: 5-February 03 Member No.: 4,017 |
1. Just the act of picking a name probably offends someone, so don't get too caught up on this goal.
2. As an investor: you get to invest your money, you get a fee for investing other people's money, and you may also get a percentage of their net gains. If you are going to take the time to learn how to spot good investment ideas, there is no reason not to also sell your knowledge and gain even more cash. 3. See 1. |
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Feb 18 2007, 02:25 PM
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#4
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Running Target Group: Members Posts: 1,150 Joined: 19-December 05 From: Rhein-Ruhr Megaplex Member No.: 8,081 |
I could only trust someone who invests his own money too, and who who get paid a percentage of the profit. Still, he could just run away with my money...
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Feb 18 2007, 07:17 PM
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#5
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Moving Target Group: Members Posts: 745 Joined: 2-January 07 From: Los Angeles, CA Member No.: 10,510 |
Quite frankly, financial advising, or any form of personal business, is just another type of investment. It has its return yield, its required prerequisites, its extry/exit barriers, and its risks. In fact, starting up your own business is one of the most profitable and risky ventures entrepreneurs know today. Very few people will depend solely on their paper assets for any income, just as most would not advise you to do so. There are many types of investments including stocks, property, real estate, and yes, your job/career.
Most financial advisors have their retirement clearly in hand through a variety of means. But the more you begin to understand how investment works the less likely you are to settle for passive investments that involve waiting for your income to trickle in. For starters, most paper assets don't accumulate income - they accumulate value. On investors like to maximize value, even if they have to seek income elsewhere. Finally, I'd like to point out that financial advisors do a lot more than just sell mutual funds, as seems to be the common viewpoint. They also help plan your retirement, look at your spending habits, try to find ways of curbing money, plan for your childrens education, deaths in the family, weddings, buying and selling property, insurance needs, and generally making sure that you are well-prepared for everything that comes up. They look at your tax situation. They make sure you are on the road to a proper retireemnt. They ask you what your goals and dreams are, and make sure you are set on a path that will help achieve them. They do a risk analysis to make sure all of your money and habits aren't overly dependant on any single risk-type. Most people enjoy talking to a financial advisor just for the educational experience alone and because they start thinking about things they didn't before. There are so many aspects to this issue I won't touch on here. That being said, if you are really interested in this topic, there are several books on the subject at your local library. And there are far better internet resources for this than dumpshock. I'd also like to point out that there is no substitute for a sound financial education. Speaking to a financial advisor is one part of that, but it's really only a part, and if you stop there than you've sold yourself short. |
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Feb 18 2007, 10:28 PM
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#6
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King of the Hobos Group: Dumpshocked Posts: 2,117 Joined: 26-February 02 Member No.: 127 |
It's also a question of money, it takes a fairly large whack of cash to be able to invest that you can live off of without having to do anything else. I'm sure if people did have the however many hundreds of thousands to invest needed to pay them a decent yearly wage you wouldn't see them for dust.
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Feb 19 2007, 09:24 AM
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#7
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Moving Target Group: Members Posts: 238 Joined: 24-January 07 Member No.: 10,756 |
My roommate is a financial adviser, and as far as I can tell, he does it because a)Although he knows a lot about money, he doesn't have much of his own. It doesn't grow on trees after all. b)He enjoys the challenge of playing the market. c)He's gotta do something during the day.
Actually, the company he works for specializes in investing the money of corporations, not individuals, and he's the guy that takes care of investor relations for 401ks (essentially, if they have a question about how the 401k is set up, they ask him.) We don't talk a lot about money, but i get the sense he has a lot more than he spends. Honestly, I'd be surprised if he wasn't a millionaire by 40, but the point is, you need money to make money, and while it's possible to earn a higher rate of return on invested money than putting it in a bank account, you still need an initial pool of funds to invest. In response to your question, people trust financial advisers because they make more money than sticking their money in a savings account, and usually they earn money based on a salary if they work at a company, with a commission for extraordinary earnings. This means they have incentive to invest wisely, not to mention criminal charges if they embezzle. |
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Feb 19 2007, 09:55 AM
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#8
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Target Group: Members Posts: 68 Joined: 11-May 02 Member No.: 2,723 |
I can follow some of your arguments: I can see that there are a lot of financial advisors who do not have enough money to live off interest. Though I'd probably doubt either their reliability (if they've been in the business for a longer time) or their experience. Advisors who do have enough money to live off interest and don't do so, I can't trust because they apparently don't trust themselves. (?) cetiah mentioned that financial advisors also:
This advice seems good advice to me. Do you have something like a "tax advisor" (DE: Steuerberater) in the US of A? |
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Feb 19 2007, 10:25 AM
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#9
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Incertum est quo loco te mors expectet; Group: Dumpshocked Posts: 6,546 Joined: 24-October 03 From: DeeCee, U.S. Member No.: 5,760 |
Like I said, you just need to look at the math. If you have $500,000 (so after paying off the house, half a million, which takes a while to accruse) you can get maybe $40k a year reliably. Sometimes more, sometimes less. But no matter what, you can't get the market to put out more than about 10%, and even that is pretty wild. OR You get paid $70,000 a year and buy a lexus. Like I pointed out though, the first step to living comfortably without working is paying off the house. In many areas, that's a pricey proposition. You're going to have trouble with your investments keeping up with mortgage rates (otherwise you'd take out a mortgage, invest it, and take the interest). Once the house is paid off, you can SURVIVE on about $2k a person, if you're willing to grow your own food (not really that hard, if you're in the right area). But you won't have an especially nice standard of living. No vacations in Tahiti, no BMW, no covering your kids' college funds. So yes, that initial capital really is a killer. It's not like you can just go to the bank, take out a $500,000 loan, invest it in the market and have enough of a difference between the interest on one and the interest on the other to live happily. |
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Feb 19 2007, 03:50 PM
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#10
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Shooting Target Group: Members Posts: 1,978 Joined: 26-February 02 From: New Jersey, USA Member No.: 500 |
That's generally part of what financial advisors (particularly full-fledged CPAs - accountants) do. |
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Feb 19 2007, 04:10 PM
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#11
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Moving Target Group: Members Posts: 384 Joined: 18-August 03 From: North VA Member No.: 5,519 |
And I'd like to know precisely why you don't think trolls make good financial advisers?
:grinbig: |
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Feb 19 2007, 11:32 PM
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#12
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Canon Companion Group: Members Posts: 8,021 Joined: 2-March 03 From: The Morgue, Singapore LTG Member No.: 4,187 |
I have 3 financial advisors. My mom. My brother who graduated with top honors in economics. And my cousin who is in banking. If you do not trust your blood, who can you trust?
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Feb 20 2007, 01:55 AM
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#13
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Moving Target Group: Members Posts: 745 Joined: 2-January 07 From: Los Angeles, CA Member No.: 10,510 |
Yes and no. We have people who just specialize in taxes. Generally speaking, it's not good to take legal advice from a financial advisor anymore than it is to take financial advice from a lawyer. |
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Feb 20 2007, 03:29 AM
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#14
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Moving Target Group: Members Posts: 530 Joined: 11-June 05 Member No.: 7,441 |
While I understand the temptation to look at it that way, there's also this to consider: If they're already doing the research and making lots of money off of it, why not also sell that information on the side to rake in even more money? Assuming that it doesn't significantly lessen their own gains (ie, there's more opportunity than the adviser can himself afford), that's what a smart business person would do, yes? Case in point: Warren Buffet is obscenely wealthy. But in his capacity as Chairman of Berkshire Hathaway, he's essentially just a financial manager for his shareholders. And by leveraging the larger amount of capital available to him from these shareholders, he's made all of them wealthier than he likely could have managed on his own. |
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Feb 20 2007, 05:03 AM
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#15
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Shooting Target Group: Members Posts: 1,512 Joined: 26-February 02 Member No.: 392 |
I'm currently going through my certification as a Chartered Financial Analyst so I feel compelled to chime in here... ;)
The investment world is incredibly varied. Take a look at the movie "Wall Street" to see just how different it can be. I did a job shadow back in high school when I first wanted to be a stock broker, at a stock brokerage. The brokers didn't know much of anything. The analysts went and did all the real work while the brokers just sold the recommendations to the clients. This is the type of financial planner that 99% of the world deals with. Contrast that with an institutional investor who works for banks, insurance companies, trust funds, government, corporations, or pension funds. These people are handling millions of dollars each in a portfolio and earn phenomenally high rates of return (as high as 10-12%). These types of investors don't deal with mooks like us. Handling a 50,000 portfolio is chump change for the salesmen to deal with. As to why an institutional investor would work for someone else and not just work for himself and stay home? Well, in most civilized contries, anyone who works in the financial industry, especially investment bankers, are required to register all their trades and go through reviews. These people have access to insider information, working on M&As, IPOs, and regularly staying in touch with CEOs and BoDirectors (networking was actually a job requirement of a position I applied for), and so could make lots of money (and do off of the cut they are allowed to take). But all jurisdictions recognize that insider trading is a BAD THING and don't allow it. On top of all of this there is the boredom factor. In Canada, if you work for an independent investment bank you can expect to work around 60-70 hours a week and if you work for a big bank you can expect to work around 80 hours. When you pull those sorts of hours for several years you get used to it. Not to mention that we (I) genuinely like working with finances, it's like a hobby, so when you actually do have enough money, all you want to do is keep working. |
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Feb 20 2007, 05:11 AM
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#16
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Shooting Target Group: Members Posts: 1,512 Joined: 26-February 02 Member No.: 392 |
Unfortunately in the financial world it doesn't always work that way. The chance for arbitrage, and for making above normal profits quickly disappears. At least according to market theory. The only time that you can make money off of a scheme is when you value a tool at one value and the technical traders are valuing it differently AND THE MARKET ADJUSTS TO PROVE YOU RIGHT. Eventually that chance to make money dwindles as the technical traders catch up to you. You make money by finding the information AND NOT SHARING IT. If you sold the recommendation then you can't make an above normal return because then people react faster to the information. Warren Buffet places too much emphasis on Technical trading. :D P.S. a technical trader is one who tries to determine value by looking at market trends. These are the traders most people think of. They are more like gamblers than financial analysts. It kind of reminds me of filling out mini-baccarat sheets with all the blue and red numbers. A fundamental trader is one who works out a company's value by looking at the financial statements as well as market/industry/global trends and determining what a fair value should be. If it is higher or lower than market he takes the appropriate action and makes above normal returns. |
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Feb 20 2007, 06:15 AM
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#17
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Moving Target Group: Members Posts: 530 Joined: 11-June 05 Member No.: 7,441 |
You make money by finding the information and not sharing it... too widely. There's a certain amount of "opportunity" available in each opportunity you identify. If you don't have the capital to make maximum use of the opportunity during the window it's available, you can maximize your own profit by letting other people buy in -- either by growing the value of your own investment (owner selling stock, for example) or by charging fees (financial advisors). Now, don't get me wrong -- the advisors who are capable of successfully doing this on a regular basis are rare. I'm just saying that they exist.
Yeah, too much emphasis to the tune of fourty something billion dollars in his pocket. I'd like some of that "too much emphasis", if you don't mind. |
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Feb 20 2007, 04:44 PM
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#18
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Shooting Target Group: Members Posts: 1,512 Joined: 26-February 02 Member No.: 392 |
It just over-exposes him to cycles in the market is all. Besides once you have as much money as him it does literally grow on trees. |
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Feb 20 2007, 06:06 PM
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#19
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Moving Target Group: Members Posts: 976 Joined: 16-September 04 From: Near my daughters, Lansdale PA Member No.: 6,668 |
As an unlicenced financial advisor (ie Customer service)what I find is I'm helping people who are intimidated by the whole finanancial setting. People who don't understand the phrases thrown about by the talking heads on TV.
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Feb 20 2007, 06:44 PM
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#20
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Moving Target Group: Members Posts: 530 Joined: 11-June 05 Member No.: 7,441 |
Yeah, but dude had to start somewhere. And I'm not really challenging that he's overtechnical, I'm just saying that irrespective of that, what he did seemed to work. :D |
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Feb 20 2007, 07:21 PM
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#21
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ghostrider Group: Retired Admins Posts: 4,196 Joined: 16-May 04 Member No.: 6,333 |
Try to drag it back to SR or let it die please. Thanks.
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Feb 20 2007, 07:33 PM
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#22
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Moving Target Group: Members Posts: 976 Joined: 16-September 04 From: Near my daughters, Lansdale PA Member No.: 6,668 |
Listening to Snow fox talk a financial advisor could be an information broker for runners. maybe explaining some data they grabbed but don't get.
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Feb 21 2007, 12:13 AM
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#23
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Moving Target Group: Members Posts: 530 Joined: 11-June 05 Member No.: 7,441 |
I heard somewhere that Warren Buffet is really an immortal elf. Anyone else hear this? :D |
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Feb 21 2007, 05:55 AM
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#24
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Moving Target Group: Members Posts: 533 Joined: 26-February 02 From: In a hot tub, with lots of bubbles and champagne waiting for you. Member No.: 1,972 |
I'll need one soon. I got 2 kids i worry about college for, and i got retirement i gotta plan for to. Not enough hours in the day, so let others worry about it for ya. My brother-in law has one and she has helped us out with a few pointers that saved us some dough. Gotta protect the nest egg!
SR related, well they do have alot of personel info about a person. Maybe they sell it? find out some bad stuff and try to get someone to help expose it? wife wants to know where her hubby is hiding his secret stash of money (all hubbys have them) and hires runners to break the lean on the advisors? |
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Feb 21 2007, 05:57 AM
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#25
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Canon Companion Group: Members Posts: 8,021 Joined: 2-March 03 From: The Morgue, Singapore LTG Member No.: 4,187 |
You mean he's not actually a Horror? Oh no! :D |
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