For our clients, this article is more of a review.
Many retail investors accept, without critical thinking, that higher risk equals higher rate of return and lower risk equals lower rate of return. I wrote last month about “relative rate of return” and have written about “risk-adjusted rate of return”. Strong money managers and financial advisors seek to construct portfolios to get the highest rate of return while accepting the lowest risk possible within a client’s objectives.
Nobody intentionally makes high risk, low return choices! However, in reviewing statements for a living, retail investors lose a lot of money they are not aware they are losing. This is sad because people typically just don’t know any better. It is also possible their current advisor doesn’t know any better, or is simply lazy. Relationships are important and the most common reason why people tolerate sub-par performance and service is because their advisor is “nice”. They like him or her! I get it!
Don’t fall in to the trap of thinking all advisors are the same, all firms are the same, or all mutual funds are the same, etc. There are very significant differences between advisors and investment firms. The compensation conflicts of interest within firms like Edward Jones, Ameriprise, Merrill Lynch, Raymond James and many others are widespread, and this is public information if you know where to look. True independent firms like PCA, working exclusively as a fiduciary when investing client money, does not have any of these conflicts of interest.
Eliminating conflicts of interest may lead to significant cost savings, therefore increasing your rate of return with no more risk! If you compared interest rates on savings accounts, money market accounts, or certificates of deposit, wouldn’t you choose the highest interest rate with all other terms equal? Of course you would, because the risk level would be the same! Higher return with less risk would always be the correct choice if you had all the facts.
At PCA, we approach every investment within a portfolio in a similar way. If a client wants to earn a 6% return over time, for example, it is in the client’s best interest to earn their 6% return with the least amount of risk (and fees) possible. This also true for a client seeking 4%, 8% or whatever. Portfolio construction and developing a financial plan tailored to your specific situation requires more work and expertise. Our team at PCA is committed to quality and transparency.
In addition to our quality of work, my wife Dawn, my children and most of my clients also think I’m nice. Isn’t “nice” expected? Courtesy, respect, and other polite traits should be expected. At PCA, we even have the Delightful Anna! Yes, this is tongue in cheek. The point is that you, and your money, deserve the best! If all you can say about your current advisor is they are “fine” or “nice” then it may be time to learn how much that costs you! What might you be missing?