People keep asking me that I am supposed to be a full-service financial advisor, yet I only talk about insurance, and they are correct. So how am I a full-service financial advisor? Well, I’m going to tell you. We are going to talk about managed money, and we do manage money also.
Managed money is you are hiring a professional money manager to manage your investments, and they charge you a fee. The fee usually runs from 1% to 2% per year. You pay no commissions. They don’t ask you what you want to invest in, they don’t ask you if you think you should sell something and something else purchase. They do the buying and selling at their discretion, so they have what is called discretionary rating.
I don’t get involved, and you don’t get involved; you have them do that. You need to select a money manager, and by the way, you can change anytime you want to. If you are unhappy with money manager A, you can go to money manager B. It costs you the same 1 to 2% depending on how much money you got. The more money you got, the less it costs.
Small accounts are generally around one and one-half percent. Small accounts would be under half a million. If they are small, less than 50 thousand, I probably wouldn’t suggest you do it, 100 thousand maybe the minimum.
How It Works
Here we have some questions, you go through a questionnaire, and these are some of the actual questions that you are to be asked. First of all, you are asked about your financials, and you get different points for each thing you get; your current household income, your time horizon, how many years you can start getting your money out. And you will be asked how strongly do you agree or disagree with the following statement; I am willing to lose larger sums of money in the short term if I can put the change on higher returns in the long term. You agree, don’t agree, strongly agree, strongly disagree? How much do you rely on income from your investments? Heavily, moderate, somewhat, not at all.
Then they will give you some choices at the back. Portfolio A is if you can make x and lose y, or portfolio B, you make a little more, but you can lose a little more, or portfolio C, you make a lot more, but you can lose a lot more. Which one would you like? How do you feel with your count down to 30% in the first couple of months? Then you come up with a score.
Depending on what your score is, we will come up with some suggestions. For example, the lower your score, the more conservative you are, so if you have a score between 4 and 17, they say that 80 to 100% of your money should be in conservative choice. It doesn’t mean you’ll not lose money but, it would be conservative investments. It’s a lot of bonds, zero coupons, higher bonds, and things that have not many risks, but I want you to understand that you can still lose money. The odds are only less than if you are a little more aggressive.
If you scored between 18 and 31, then you can still have 30 to 80% of your portfolio in the conservative. But then you can get a little more moderate where you take a little more risk in 20 to 70% of your money. If you scored a little higher, you could put 0 to 50 in conservative and 40 to 100 in moderate. Here you can get into some aggressive. They suggest no more than 20%.
And if you’re just being super, super-duper aggressive, you can put 100% of your money in aggressive portfolios. The aggressive portfolios will have the potential to make the most money, and they also have the most potential to lose money. So you have to choose what you think is appropriate. We would put you into a position if you are supposed to be 50% conservative, then we will put you into 50% conservative.
Regardless of your score on this test, you can come back and say you don’t want 50% conservative; you want 50% moderate-50% aggressive. Then, you have to sign a statement saying that you are okay with that, that your risk propensity test, which we are doing here, says you should have the opposite, but you are overriding that. So you understand that you are overriding that, you are becoming more aggressive than you should be, and you are taking a risk, so you agree to do that.
Again, you never get charged to a commission. You get a copy of each sale, and they may probably make 20 to 30 sales during a month. You never pay any commission. My income and your income are tied together. The more money you have in your account, the more money I’ll make. If I charge, let’s say, one and a half percent fee, and if you start at 100 and get you up to 500, my company and I will get one and a half percent of 500 instead of one and a half percent of 100. That’s a pretty fair scale.
The other way you can buy securities is you do it on a broad-based basis, where we decide if you are to buy, protect the stock, or mutual fund or whatever, and you pay a commission. If you are doing a lot of trading, commissions can get pretty high. But here, hiring a money manager, you got no commissions but a fee. The fee is taken monthly but is charged annually.
I hope that gives you a little bit of a handle on what we have available. There are a lot of different choices. And remember you can change anytime you want to. There is no charge to change. Your money is 100% liquid. You can take any amount, all of it the first day if you want to. There’s never a fee for withdrawing money but remember this, unless you are in a fixed something like CD, money market, or fixed annuity, which you can’t put in these investments, you can lose principal. I hope that is a clear setup.
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