If we can’t pick a stock, do we turn to mutual funds? A mutual fund is basically investing in a person(s) that pick stocks for us. So if we can’t pick a stock, what makes us think we can pick a person that can pick a stock? Picking mutual funds isn’t easier, is it?  

If an adviser picks mutual funds, especially loaded funds, there is almost no hope of coming out ahead compared to the index as the fees and taxes give the results quite a haircut. Study after study points to index funds for the average investor as the best way to go because even with no-load funds in a tax free account the vast majority don’t beat their benchmark. With actively managed mutual funds, the odds are against us before we start.

Besides…

If you can’t pick stocks, what makes you think you can pick a person that picks stocks (mutual fund manager)?

And if you can’t pick a person a person that picks stocks, what makes you think you can pick a person (financial adviser) that picks a person (mutual fund manager) that picks stocks?

In other words, if you don’t know what you are doing, how do you know if what you are doing is right?

Setting life goals are a big part of working with clients. Often times, it takes more than just a simple question to examine the real goals of clients. They tend to say what they think you want to hear, or what sounds good. My anecdotal evidence suggests that most advisers accept that as they are just trying to land the business, and pushing further isn’t beneficial to the sale. In sales, your selling the vision, not reality, which is why beer commercials with great looking girls work really well with male beer drinkers. 🙂 However, in this business, I would argue that going beyond the superficial is crucial to trust building and a long term relationship. But I would also acknowledge this will cost the adviser some business and makes things harder. So you have to decide how much you’re going to push them for their real thoughts.

ARMS are great for those that will move every few years, but if you stay put, it’s not a good option for the most part. There is a balancing act there that must be considered before jumping into a low payment and winding up very poor.