Would You Trust Your Financial Planner Again?

Baby Boomers need to ask themselves if they would invest their money again with their fund manager or financial planner. In most cases your financial planner or fund manager has done a lousy job investing your money and protecting it from large losses.

In additional many do not see that there is anything wrong in losing 20-30% of your personal wealth. Nor do they feel in any way responsible for this loss. It’s all part of the buy and hold philosophy that says stay invested or you might miss the rebound. They actually believe this rubbish.

There is a time for buy and hold but not at the top of the market. That’s the time to realise your profits and get out.

In Australia we have compulsory superannuation where 9% of our money is taken off us by government decree and given to funds managed by people we don’t know. Many of these funds have not only lost money in equities they have lost money through redemptions too. It is similar in other parts of the world.

Fund Managers now need to replenish their  store of cash (just like the banks) to start making themselves real money again. So now you may well see a concerted effort by the wealth management industry to lobby governments to increase the contributions you are forced to make. Or Governments may increase the tax incentives to get you to part with your money.

In the worst case governments may take over private funds under the pretext that they need to protect your nest egg after the private sector failed to do so. Argentina has just done such a thing for the “benefit” of its citizens.

In and of itself it is a good thing to save for your retirement. What is not a good thing is being forced to give your money to someone, a fund manager or financial planner, you don’t know and then trusting them with it for 40 years.

We don’t allow our governments to stay in power for more than 3-4 years before we get a chance to vote them back in or out of office. There are very good reasons for this as we all know.

In truth you do have some choices and it is your responsibility to make those choices. In many countries private retirement funds can be set up to take advantage of any tax concessions. This should be considered for part of your retirement funds.

In addition there are often options for you to distribute your contributions to several fund managers rather than just the employer selected fund manager. Again this should be seriously considered.

I don’t buy the marketing blurb that a single fund manager using a WRAP account or other method can provide you with a cost effective fully diversified portfolio.

In retirement capital preservation is far more important than cost effectiveness. Also having all your nest egg with one fund manager is risky in these times of low business ethics and when the wealth management industry fails to accept any kind of fiduciary responsibility for your losses.

Always remember their disclaimer, “past performance is no guarantee of future returns”. It’s too late though after they have lost your money.

In my view and especially after this credit crisis, I would put no more than 25% of my funds with any one fund manager or financial planner. If I could manage it I’d only put 10% with each one, but management fees and charges can become prohibitive.

But having you money with several different fund managers will reduce the risk of you losing all your money at once (Bernie Madoff), or having all your money frozen. It will also allow you to check and compare the performances of the various funds.

Knowing how each is performing is a good lever to asking serious question about poor performing funds. It means you don’t need to know the investments themselves, just how they are performing relative to each other.

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