This Monday morning we reach our tenth and final installment in our series of most common investor errors.

This is a rather simple but overlooked aspect of investing — and that is making sure that when you work with any sort of professional (Lawyer/Accountant/Manager/Planner) you get your money’s worth.

10. When Paying Fees, Get What You Pay For: It always surprises me how much money some people are willing to throw at people like me to manage their financial affairs — whether its necessary or not.

For the professionals who charge by the hour (Lawyers and Accountants) avoid chatting or dawdling on the phone. When they take you out to lunch, expect tat you are actually paying the bill — either your account is charged for the tab or the time is billed. Make it business, not social.

And when retaining a financial professional, make sure your fees cover a variety of the services you actually need.

For some people, hiring a pro can make sense. If you have a more complex financial situation — perhaps you may have a complicated tax issue, or may be looking at a generational wealth transfer. These sorts of issues are often best served with a competent professional managing them.

We have lots of clients who are too busy running their own businesses and do not have the time to manage their own investments. And as noted in many of our prior points (1-9), a lot of folk simply lack the temperament and discipline to deal with stress and emotions of capital markets. If that describes you, paying someone to run your assets or at least facilitate your investing and income management makes sense.

But for many others, they might be better off simply dollar cost averaging into a group of broad indices and saving the 1-2% annual fees.

Consider what sort of help you really need, and find someone competent to assist you in your financial planning. If your needs are straightforward and simple, you might be able to do it yourself and save the fees.

 

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Previously:
1. Excess Fees
2. Reaching for Yield
3. You Are Your Own Worst Enemy
4. Asset Allocation vs Stock Picking
5. Passive vs Active Management
6. Mutual Fund vs ETFs
7. Neglecting the Long Cycle
8. Cognitive Deficits
9. Past Performance vs Future Results

 

Top 10 Investor Errors
1. High Fees Are A Drag on Returns
2. Reaching for Yield
3. You (and your Behavior) Are Your Own Worst Enemy
4. Asset Allocation Matters More than Stock Picking
5. Passive vs Active Management
6. Mutual Fund vs ETFs
7. Not Understanding the Long Cycle
8. Cognitive Errors
9. Confusing Past Performance With Future Potential
10. When Paying Fees, Get What You Pay For

Category: Apprenticed Investor, Investing, Philosophy, Valuation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

8 Responses to “Top 10 Investor Errors: Not Getting What You Pay For”

  1. rd says:

    Here is a group of people who could use good investing advice from competent professionals.

    http://www.bloomberg.com/news/2012-07-09/wall-streeters-lose-2-billion-in-401-k-bet-on-own-firms.html

  2. faulkner says:

    Selecting a financial advisor is subject to all of the cognitive errors of trading and investing. After all, we are using the same strategies to decide. Then add to that the interpersonal dimensions of the decision. Is the advisor providing personal relief, a sense of security, an ego boost, bragging rights, or a for-profit friendship? Have you vetted the advisor in terms of which of the ‘Investor Errors’ he/she might be committing? Initially engaging an advisor can occur when one are naive about what is needed which suggests revising this decision when you are a more experienced investor.

  3. [...] Make sure you need the financial advice you are paying (high) fees for.  (Big Picture) [...]

  4. Wez says:

    Great Series Barry, you should compile it and make a sticky link to it somewhere on the site.

  5. machinehead says:

    ‘But for many others, they might be better off simply dollar cost averaging into a group of broad indices and saving the 1-2% annual fees.’

    An astute observation worth expanding into a book.

    If you don’t do it, BR, then I will.

  6. JohnT says:

    Amen, brother Barry!

    Not getting garrulous is especially important for older people like me, especially when consulting lawyers. They try to get us talking about this and that, “sharing” our wisdom.

    Ugh.

  7. rd says:

    @machinehead

    Bogle, Ferri, Swenson, Bernstein, etc. have already written the books. Vanguard and a couple of others are providing the mutual funds and ETFs to execute the strategy. However, it is too simple for the average person to execute.

  8. end game says:

    This has applications in both the investment and political realms, and where they overlap: the political leanings of your advisor and its potentially detrimental effect on your advice. The Dunning-Kruger Effect: http://rationalwiki.org/wiki/Dunning-Kruger_effect and http://en.wikipedia.org/wiki/Dunning%E2%80%93Kruger_effect shows that those in the bottom 12% think they’re in the top 38%.
    This helps explain why conservatives think and speak so overconfidently, and how they can completely misjudge a deflationary crisis and confidently prescribe a fatal austerity. In my estimation, probably tw0-thirds of stockbrokers are conservatives, and fully applying this illusory superiority but real incompetence into your investment advice, they, as a consequence of their blind spot, misanalyzed the Fed’s response to the financial crisis as highly inflationary, recommending inflation hedges like commodities which have tanked, and getting out of long term bonds, which have soared. And for that they charge you 1% per annum, and continue to while your short-term bonds yield 1%. Good luck with that.