Beware the Advisor Bearing Gifts: A Sad True Tale

Hailing from a family of doctors, I always took a surgical approach to investing. First, diagnose the symptoms. Symptoms are the little clues, the damages that problems leave behind. Then you expose the problem (or problems), the next question is “How do I treat this?” You excise the problem and prescribe a treatment. Finally, there is the maintenance; check-ups to make sure the solution is working and the patient/portfolio is alive and thriving. In other words, cut the bullshit, address the problem head on without emotion, move on, live a better healthier life.

scalpel hand

This method worked extremely well for me for a long time. I would diagnose a portfolio, expose some massive gaps, shortcomings in performance, or tumorous fees, and the patient would come to me for my solution. I relish the work because I truly get a sense that I am leaving the client better off.

So when I first diagnosed a prospective client’s portfolio as horribly damaged, I thought I knew what to expect. Denial at the problems, Anger at the previous advisor for what they did and at herself for not seeing it, Grief, and finally Acceptance with a resolve to fix it. This is what I had seen dozens of times before. I had forgotten the human element.

“Oh, he can’t have known about all these charges then.”

“He did, he collected commission on all of them.”

“This isn’t the performance he told me, there must be a mistake.”

“I’m sorry, but there isn’t.”

Excuses made, and done away with. Finally, she was left dealing with the reality. This “great relationship” she had had with her advisor, who had taken her out to fancy dinners, events, and acted like a member of the extended family, had been ripping her off for years and left her with considerably less than she ought to have. Silence enveloped us.

“Well, thank you for showing me all of this, I really was unaware. This is such a disaster honestly. I only wish I had caught it a few decades ago… I guess its too late now.”

The response baffled me. It wasn’t too late I assured her, I could help her get her situation back on track. And if not me, at least I could point her in the right direction of a new advisor.

“Oh, I think I’ll just stay with him, its too late at this point anyway, and he’s really close to the family. I don’t think I could do that to him. He’s been with us for years… it would probably come as quite a blow.”

I left this meeting completely shaken in my own process. She had seen every problem, every fatal conflict of interest. She had agreed wholeheartedly. It was as if her previous doctor had been giving her mercury to treat an infection, knowing full well it did nothing but harm, and her reply was “Oh, well. Its too late to change my course of treatment now, thank you anyway. I’ll stick with my doctor.”

So why didn’t she seek proper treatment? Why did she stay?

brain neurons firing
I found my answer not in technical analysis but in psychology. The fact at hand was, no matter what I had said, she was never going to leave her objectively awful advisor. I could have told her he had liquidated her account and put it all in zeppelin futures, it wouldn’t have mattered. I could have told her he had “invested” in a moat and drawbridge around his house complete with piranhas in the water, it wouldn’t have mattered. She was too afraid of confronting someone who had positioned himself as a lifelong friend and ally, not matter how much evidence I uncovered she should.

I learned that day that some people have an EASY time leaving the people who don’t treat them right, and others struggle to do so immensely, and sometimes never do at all.

This wouldn’t be the last time I saw someone stick with a bad advisor because they “didn’t want to risk the relationship.” I observed more, and noticed some advisors exploiting this vulnerability. I believe in treating your clients right; I believe in holiday gifts, in “Happy Birthday!!”s, in getting together for a round of golf; I think a convivial friendship is possible. But first and foremost, I exist to SERVE them, I don’t treat someone to a dinner just so I can swindle them when they leave thinking “He’s a nice guy!”

Too often, I am seeing clients (particularly wealthy ones) being wooed and placated with dinners at the country club, gifts, and other marks of success, to the point where they don’t even ASK how they are doing. Spoiler Alert: the guy who handles your money acting out lavishly in front of you is NOT a good sign. Bear in mind that every dollar he spends on you doesn’t come CLOSE to how much he’s making off of you. That’s basic math. Its easy to live large when its on someone else’s dime.

Compounding this problem is the seemingly blind faith in large financial institutions¬†some wealthier clientele hold. There appears to be an unspoken belief, that if the sum of money entrusted to these institutions is large enough, then the institutions can’t POSSIBLY be ripping you off. That they wouldn’t dare. The problem with this logic is that these institutions know you’re thinking it, and exploit it by charging sky-high fees you may never bother to check. Sales charges of 5.75%, expense ratios of 2.43%, churning, we’ve seen it all, happening to people thinking they are paying premium prices for premium advice, despite overwhelming evidence proving high fees do nothing but enrich the company charging them. In my experience, I would say that the average $10,000 account is paying a much lower percentage rate to these companies each year than a $2,000,000 account. This is largely because the client with $10,000 invested typically checks their portfolio’s status frequently, and a $2,000,000 account holder may never check their account at all. This is an endemic that is as quiet as it is common, the institutional players’ happy little secret.

rich guys laughing

When you see an advisor who relies on his relationships more than his skills as an investor, beware. If you are afraid leaving your advisor will hurt his feelings, you are putting HIS or her needs ABOVE your own. At the end of the day, your dealings are a business transaction, and if it involves your retirement, it is one of if not the most important transactions of your life. Save the always smiling, never confrontational attitude for the nice server who brings you your coffee and bagel in the morning. Whether its love or finance, don’t be afraid to confront and leave someone who isn’t the best fit for you, and don’t stick around just because its easy. Its a tough lesson to learn and comes very late in life for some people. But please, don’t make yourself a victim for someone else’s benefit.

An advisor split doesn’t have to be hard. Remember: this is first and foremost a business transaction. If you aren’t a confrontational person, its perfectly acceptable to say “I’m going to be moving to another advisor, no hard feelings” without airing your laundry list of grievances. The victory lies in getting YOURSELF to a place of growth, not necessarily in telling them off. “Holding onto anger is like drinking poison and expecting the other person to get sick,” after all. For the REALLY confrontation-averse, simply ask your new advisor to break the news to the old. My partners and I have done it before, and are ready and willing to be the kind and professional voice for those clients that prefer it.

If this article helped you to prioritize your own well-being first, or if you feel its a message someone you know needs to see, feel free to share.

– Kiernan Easton, Partner and Private Wealth Manager at Dynamic Wealth Solutions
(Cell) 1-248-792-1964
29777 Telegraph Rd. Suite 2417 Southfield, MI 48034


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