Who's Watching Your Money?: The 17 Principles for Selecting a Financial Advisor


The financial planner is becoming as important as the family doctor. Yet, as is often the case with other professions, it is difficult to know how to select a good advisor. This problem is compounded by the fact that, unlike doctors and lawyers, anyone can call themselves a financial planner/advisor. Blind Trust and its complimentary Web site, can be considered theConsumer Reportsfor financial advisors. It will tell readers what to look for, what to ask, and what to avoid when searching for a proper financial ...

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The financial planner is becoming as important as the family doctor. Yet, as is often the case with other professions, it is difficult to know how to select a good advisor. This problem is compounded by the fact that, unlike doctors and lawyers, anyone can call themselves a financial planner/advisor. Blind Trust and its complimentary Web site, can be considered theConsumer Reportsfor financial advisors. It will tell readers what to look for, what to ask, and what to avoid when searching for a proper financial advisor.

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Product Details

  • ISBN-13: 9780471476993
  • Publisher: Wiley
  • Publication date: 11/26/2003
  • Edition number: 1
  • Pages: 236
  • Product dimensions: 6.30 (w) x 9.00 (h) x 1.00 (d)

Meet the Author

Jack Waymire has spent the past 26 years in the financial services industry working with investors and advisors. For twenty of those years he was the president of public companies that were in the asset management, advisory, and technology businesses. In that role, he pursued a personal goal of working with quality investment professionals who were willing to put investors’ needs ahead of their own. These advisors were experts in their fields who possessed the knowledge and integrity to help investors achieve their financial goals. He also observed the self-serving nature of the industry when incompetent advisors sold low-quality products to trusting investors. They were very adept at building trust, then abusing it. These observations caused him to write Who’s Watching Your Money? Once you have read this book, you will never select an incompetent, untrustworthy advisor again.

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Table of Contents

Preface xi

Introduction xv

1 Financial Realities 1

2 Trust 15

3 Service Providers 37

4 Conflicts of Interest 55

5 Criteria 77

6 Due Diligence 105

7 Consultants 127

8 Planners 151

9 Financial Representatives 167

10 Replacement 183

11 Relationships 199

12 The Paladin Principles 209

Epilogue 223

Index 229

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First Chapter

Who's Watching Your Money?

The 17 Paladin Principles for Selecting a Financial Advisor
By Jack Waymire

John Wiley & Sons

ISBN: 0-471-47699-4

Chapter One

Financial Realities

Step one in your odyssey to accumulate and preserve substantial assets for retirement is to increase your awareness of several powerful realities that impact your investment decisions. Ignored, these realities will damage or destroy your financial future. You may have already experienced the financial impact of bad advice provided by incompetent investment professionals. Inevitably, the results are lost time and lost performance, both of which are irretrievable.

This chapter explains several of these realities and describes the only practical solution you have for the achievement of a lifetime of financial security.

The Wakeup Call

Any important objective, such as accumulating and preserving sufficient assets for retirement, requires a goal and a strategy. In fact, it is nearly impossible to achieve any type of complex, long-term objective without both. For example, suppose your goal is to accumulate $800,000 in retirement assets by age 65. If you do not have an effective strategy for generating the savings and performance needed to reach that figure, the goal will not be realized. You will be forced to choose between several onerous alternatives: deferred retirement, part-time employment, a reduced standard of living, or inadequate assets late in life.

It is an unfortunate reality that establishing long-term goals, executing complex strategies, and maintaining investment disciplines are not enjoyable tasks. They are frequently ignored, and investors hope the assets are there when they are needed. Then, when the problem is big enough, we force ourselves to acquire the knowledge to develop and execute a retirement strategy. However, by then it is often too late. There is an old adage in the financial services industry that most investors spend more time planning their next vacation than they do planning their financial futures. This is true for many people because they fail to realize that knowledge, goals, and strategy are the keys to a successful financial future.

You may be wondering why a personal commitment to knowledge is so important to the success of financial planning. It is because the accumulation of retirement assets has a powerful opponent that competes with your interests. That competitor is the financial services industry itself, and you cannot always trust the information that is provided by its representatives. The core problem is that there are conflicting goals. Yours is to maximize financial security, whereas the industry's goal is to maximize profits. An advisor's goal is to maximize personal income. All three goals must be achieved with your assets, which produces competing interests. It is critical that you understand the characteristics of this competitor, because only then can you learn to protect your assets from an industry that more often than not places its interests ahead of yours.

Friendship Is Risky

The financial services industry spends millions of dollars a year teaching advisors how to build friendly relationships with you. This is because decades ago, it learned that personal relationships facilitate the sale of its products and increase its retention rates: you are more likely to buy and less likely to terminate the services of someone you like. Consequently, friendship is a technique that advisors use for developing trust, which in turn helps them sell financial products. The problem occurs when industry-wide goals are achieved at your expense-for example, the investment excess of the 1990s that produced seven trillion dollars of losses in the early 2000s.

You are entering into a business relationship that is based on a fair exchange: You pay the industry's advisors for value-added services that help you improve the performance of your assets. Friendship is not part of this exchange. Consider it a bonus "after" your financial goals are achieved.

False Sense of Security

The financial services industry spends hundreds of millions of dollars a year on marketing the critical importance of three things: relationships, trust, and results. It has also hired hundreds of thousands of financial advisors and taught them to build personal relationships. This has been a successful business model for decades.

However, recent headlines are beginning to alert investors to the conflicts of interest that permeate the industry. Millions of investors are no longer as secure as they once were when they believed their assets were "in the right hands." At the center of the controversy are the professionals who represent the industry's companies, market its products, and develop trusting relationships with you.

You may feel comfortable with the financial advisor who currently controls or influences how you invest your assets in the securities markets. The critical question is whether this feeling is warranted by the competence and trustworthiness of a professional who puts your interests ahead of his or her own. A major risk is that your feelings have been influenced by years of advertising, brand names, structured presentations, and relationship skills, all of which have nothing to do with competence, trust, or results.

Awareness Is Power

You will be in a better position to take control of your financial future when you are aware of the powerful forces that impact your ability to accumulate and preserve retirement assets. If you have this knowledge, you will no longer be dependent on an industry that uses your assets to maximize its revenue and profit. Control also means that you are no longer susceptible to industry strategies that deliver unfulfilled promises.

Just think about the catastrophic consequences if the opposite were true-maybe you already have in the early 2000s. Lack of awareness transfers your power to an industry that has proven its willingness to compromise your financial future to satisfy its own needs.

Critical Financial Needs

There are three investment-related needs for retirement that, if you meet them, will produce a secure financial future:

1. Substantial assets that produce sufficient income to fund your lifestyle during retirement and provide financial security late in life.

2. Competitive returns that produce the assets.

3. Competent, trustworthy advice that produces the returns.

How Much Is Enough?

Most investors do not know how much money they will need for retirement or financial security late in life. This lack of awareness is a paradox because this target number is such a critical variable when planning for retirement. One easy way to determine the monetary figure is described in a 2002 Charles Schwab study. It concluded that you will need $230,000 of assets for every $1,000 of monthly income ($230 of assets for every dollar of monthly income, an annual payout rate of 5.2 percent during your retirement years). At $5,000 per month, you will need $1,150,000 of assets. At $10,000 per month, you will require $2,300,000. At $20,000, you will need to accumulate $4,600,000.

Longevity is one of the primary reasons that creates the need for substantial assets. According to the Annuity 2000 Mortality Table, the joint life expectancy of a couple age 65 is 92-a horizon of 27 years or more if you retire at age 65. There is a 25 percent chance one partner will live to age 97. Life expectancy has increased two or three years in just the past decade alone. You can thank modern drugs, genetic therapies, technology, and healthier lifestyles for this dramatic increase.

Pre- and early retirees are just beginning to recognize the financial implications of living longer. They will need substantially more asset value than their parents did if they want financial security late in life. In addition, they will have to generate higher returns and take more risk for as many as fifteen years after retirement to protect their principal and purchasing power. Running out of assets and returning to work at age 80 is simply not a viable strategy.

Competitive Returns

Your need for substantial assets drives the need for significant investment performance. This is based on the premise that millions of future retirees with a few hundred thousand dollars in their retirement accounts will have no way to "save" their way out of financial uncertainty. They will need significant performance in order to increase asset amounts-this is their only viable option.

Most of your annual increases in assets will come from performance and not savings because the principal amount in savings accounts is or will be larger than net income from salary and investment rates of return are higher than savings rates. As an example, suppose your one-year investment return on $300,000 was 12 percent, producing $36,000 in new assets. This compares to a savings rate of ten percent on your personal net income of $80,000, yielding $8,000 of new assets to invest. In this example, 82 percent of your increased assets comes from investment performance. As you can see, unless you have the unusual ability to save very large sums of money, performance is the critical component to a comfortable, secure retirement.

Competent, Trustworthy Advice

To achieve the performance you require from your assets, you will need competent advice from a professional whom you can trust. This person must possess the requisite knowledge and have access to sophisticated services in order to advise you on the optimum strategy for investing your assets. This means that the advisor must have substantial knowledge obtained from formal education programs and years of experience. The advisor must also provide objective, high-quality advice that puts your needs for assets and performance ahead of his or her personal need for income. Most importantly, the advisor must have a history of integrity. After all, how valuable is investment advice if you cannot trust it?

Advisors who meet these criteria are the exception rather than the rule. They are the most successful professionals in the industry, because all investors would like to use their services. They are the topic of this book.

What Are the Obstacles?

You have very specific financial goals. You need a specific asset value by a certain deadline in order to retire and enjoy financial security for the remainder of your life. Then you need a strategy that will maximize the chances of achieving that goal. Unfortunately, there are several daunting obstacles that stand in your way, and left unattended, they will destroy your plans.

You May Be an Obstacle

You may be your own worst enemy when it comes to selecting competent, trustworthy advisors for your assets. Why? Because you are susceptible to the overtures of an industry that make it easy to select and retain advisors for the wrong reasons. This susceptibility exhibits itself when you select advisors based on their carefully crafted sales presentations. It is also common to retain advisors for long periods of time, even when they are not delivering competitive performance for reasonable levels of risk and expense. It is always easier to maintain the status quo and hope that future performance will be better. "Hope springs eternal," as the saying goes, and the financial services industry is very skilled at marketing hope. It is an unfortunate reality that your hopes are in direct conflict with the industry's need to maximize profits for its companies and income for its advisors.

Bad Advice

Our research indicates that up to 84 percent of investors with more than $100,000 place their financial futures in the hands of investment advisors who have a broad range of credentials and capabilities. Based upon my experience, the large majority of these advisors are not the competent professionals you think they are. Instead, they are representatives who are paid commissions to sell particular types or brands of financial products. When you hire inexperienced or poorly trained professionals, there is a high probability that you will receive bad or tainted advice.

This is one of your major obstacles. If you are going to entrust your financial future to a professional, you had better be sure that the professional is competent and worthy of your trust. The advisor must meet certain minimum standards, or you will pay a severe price later in life, often when it is too late.

Savings and Debt Rates

Another obstacle is your ability to save your way out of a retirement asset deficit. Baby boomers, the next generation to retire, have the lowest savings rates in history. This reality has been fueled by a number of contributing factors. The securities performance of the roaring '80s and '90s led many investors to reduce their savings rates, thinking the extraordinarily high returns would go on indefinitely. The same generation is also experiencing the highest debt in history, and discretionary income that could be going into savings accounts is diverted to interest and principal payments. High debt payments and low savings rates dramatically affect your ability to accumulate assets for retirement. If this describes your situation, your only recourse is to try to catch up by maximizing the performance of your assets.

Personal assets, held outside company pension plans, are a critical component of any retirement planning strategy. The Social Security Administration estimates that the average American of modest income derives 24 percent of retirement assets from qualified plans, 21 percent from Social Security, and 55 percent from personal assets and income. It will be very difficult for most Americans to retire with financial security if they are overly dependent on income from retirement plans or Social Security.

The extraordinary popularity of 401(k) plans in the '80s and '90s also increased your need for higher investment returns. Previous generations retired from companies that provided benefit plans with guaranteed incomes for life. Underperformance was the employer's problem, and the company would make additional contributions to make sure that there were adequate assets for required distributions.

If you are a baby boomer, it is likely that you work for a company that sponsors a 401(k) plan and not a defined benefit plan. When you contribute pre-tax dollars to the plan, the company may or may not provide a matching contribution, and the amount of assets you will have for retirement is determined by the performance of the plan. In other words, unlike your parents, you are impacted by the performance of the plan's investments-just as you are in your IRA and other personal investment accounts.

Competitive performance is the only way you can adequately protect your lifestyle.


Your need to produce competitive rates of return on your assets does not stop the day you retire.


Excerpted from Who's Watching Your Money? by Jack Waymire Excerpted by permission.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

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