How I Will Be Rich

According to a study posted on the Morningstar Website, Individuals can do much better on their own than with Financial Advisors.

Here are the main points of the study:

1. Do advisors give clients access to funds that are harder to find and evaluate? The answer is yes, but as you will see, as a whole, advisor-selected funds underperform funds that investors select on their own.

2. Do advisors help clients find funds that are lower cost (excluding distribution costs)? After analyzing several trillion dollars worth of transactions, the answer is no.

3. Do advisors give clients access to funds with better performance? The answer is a resounding no. I know this is shocking–and it may not apply to you. But the scientific evidence shows that many of the other advisors in America not only underperform indexes–they underperform what most people do on their own if they don’t have an advisor.

4. Do advisors provide superior asset allocation? After years of research covering trillions of dollars of asset allocations, the finding is that advisors do not provide superior asset allocation. Even without this study, one only had to look at how advisors overemphasized technology funds in the late 1990s and how many advisors are overemphasizing energy, gold, and foreign funds today.

5. Do advisors help correct bad investor behavior such as chasing fads and chasing performance? The sobering answer is no. In fact, the evidence shows that advisors even contribute to such behavior. Again, look at all the money advisors are pouring into energy, gold, and foreign funds.

I have heard people tell me that they use a financial advisor because they have access to more information about certain funds or because someone doesn’t have enough time to manage their investments. In actuallity this can be harmful to your finances because Financial Advisors often do not have your best interest in mind. I also know one person in particular that lost approximately $100,000 at the hands of a financial advisor.

Avoid… You can do better on your own.

-M

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