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Tricks (Witting or Not) that Investment Advisors Play

Flow FP's Block Woman Contemplates the Shell Game

I am an investment advisor. I believe that I, and many other investment advisors, bring real value to our clients’ lives. But man, this profession is rife with, mmmm, unseemly behavior.

I’ve been struggling in my own firm, lately, with tricks that clients’ former investment advisors played, wittingly or not. Tricks that have made my clients’ lives unnecessarily more stressful, more fearful, and most likely way more expensive.

There are a lot of tricks in this industry, and I don’t pretend to know or certainly list them all here. And note that I am not necessarily ascribing intent to any of these tricks. A lot of us were simply “raised” in an industry that did it a certain way, so that’s just How You Do It. I personally would rather suffer as the result of an innocent mistake than from an intentional one, but ultimately, you and your money suffer just the same.

Trick #1: Put Your Money into Proprietary Investment Products

What is a proprietary investment product, you ask? It’s basically the store brand, a product that a financial company created themselves. This is in contrast to a “name brand.”

The point here is that you can only hold proprietary “store brand” investment products at the financial company that created them. You wouldn’t expect to be able to buy Kroger-branded dental floss at Safeway, would you? By contrast, you can hold “name brand” investment products anywhere. You can buy Oral-B dental floss in both Safeway and Kroger.

Why is it bad to invest your money in a proprietary product? Because Now You’re Stuck.

If you want to leave that financial company, or your advisor there, and move to another advisor or another financial company, you have to sell those proprietary products. If it’s in a taxable account, and those investments have gained value, that means you have to pay taxes on the gain.

Oftentimes these proprietary products are really kind of crappy anyways, and by “crappy” I mostly mean “high cost.” Fidelity recently rolled out some generally very good index funds: they track the total stock market and their annual expense ratio is 0%. But even with all those good things going for them, they’re proprietary. So, if you want to take that money to another company, you have to sell those investments…and possibly incur taxes in the process.

Trick #2: Put Your Money into Illiquid (Not Easily Turn-able Into Cash) Investments

If you buy a share of Amazon stock today, you can sell it tomorrow (not that I recommend it). If Momma truly needs a new pair of shoes, and all you’ve got is Amazon stock, then you can quickly turn that Amazon stock into shoes. The same applies to most of what we think about when investing: public company stock and index funds and mutual funds and ETFs.

Your investment advisor might instead invest your money in illiquid investments, where it’s either very hard or very expensive to get your money out of it. No shoes for Momma! Examples of these illiquid investments are annuities, cash-value life insurance (whole life, universal life, etc.), and privately traded REITs (real estate investment trust).

Really, any privately traded (i.e., not publicly traded…’cause that’s how language works) investment is illiquid. Need a great example of privately traded investments that are hard (and expensive), if possible at all, to turn into Actual Money? Just think of your private-tech company employer and the stock you got from them via options or RSUs.

Trick #3: Make Your Investment Portfolio Complicated

I. am. so smart. SMRT. You couldn’t possibly invest your money without me at the helm.”

I’ve thought a lot about what value I bring to my clients as an investment advisor. I’ve concluded Pretty Strongly that it is not in choosing The Perfect Stock or Fund that is going to Totally Outperform The Market or in choosing the World’s Best Balance of stock, bonds, and real estate. Why do I believe that so strongly about myself? Because I believe it about all investment advisors.

To a meaningful extent, the investing puzzle is “solved”: Own a broadly diversified portfolio at a low cost, and don’t touch it.

So, if someone is creating a portfolio for you that you cannot wrap your head around, first, of course, ask questions. And if you still can’t understand it, then that’s a problem.

It’s a problem because, if you don’t understand at least generally how your money is invested, then you’re trapped. Emotionally, if nothing else. Because you fear what will happen if you don’t have that particular advisor managing your money with their particular insight and approach.

One of my favorite stories to tell around keeping your investing simple is that of the Nevada State pension plan (a better but paywalled article here). As of 2016, it was investing $35 billion. And you know what the single, solitary investment professional who manages the fund invested it in? Index funds. His philosophy? Do as little as possible.

So, if your portfolio starts to edge over $35 billion, maybe consider complicating your investment portfolio a bit. But until then…

Trick #4: Use Big Words to Discuss Your Investments

I’m the first one to use Big Words. I mean, I still have a favorite trio of synonyms from my high school days and reading James Fenimore Cooper (sententious, aphoristic and epigrammatic, if you’re interested).

But when it comes to investing your money, the smaller and less jargon-y the words, the better.

I believe it is very important for my clients to understand what I’m doing with their money, and why. And it is hard (at least, in my opinion) to discuss all the important investment concepts at play without lapsing into jargon like “asset allocation” and “asset location” and “expense ratio” (and these are some of the least jargon-y of the jargon).

All of these technical concepts have Real English explanations, so if you want to understand (and you should!), just keep asking until you do. Because if you don’t, then you don’t understand what’s happening to your money and you need to rely in an outsized way on your investment advisor.

Trick #5: Pretend Any Sort of Knowledge of the Future


Trick #6: Create a Complex Portfolio that Is, in Effect, Just a (Stupidly Expensive) Index Fund

Do you have 30 mutual funds or ETFs in your portfolio? Has your investment advisor described why you should have this fund because it captures the large-cap value US stocks, and this other fund because it captures the large-cap growth stocks, and yet another to capture the small-cap value, and on and on?

You know what you have invested your money in? A total US stock market index fund. Only you own it in by way of maybe 9 different funds instead of 1 big fund that owns the whole market.

The result? It’s possibly more expensive (investing is getting cheaper by the day, so this might not be the case; but if any of these are actively managed mutual funds, you can bet your bippy it’s more expensive), and it sure as sh*t is more confusing. Just own a total US stock market index fund or ETF and be done with it!

There can be legitimate reasons to hold a more detailed approach to investing, because yes, it does allow for better tax-loss harvesting and charitable contribution. In my experience, those benefits pale in comparison to having a simple portfolio that you understand.

The profession (of investment advisor, financial planner, what have you) is evolving, perhaps slowly, away from an “Investments first and always” approach to working with clients. But we still, as a group, conceive of our value and earn our fees through investing. It’s probably no surprise, then, that these tricks have arisen. I hope they make sense to you and you consider yourself a bit wiser for having read this!

If you want to work with a financial planner who emphasizes simplicity, low cost, and understanding in her investment work, reach out to me at  or schedule a free consultation.

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Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Meg Bartelt, and all rights are reserved. Read the full Disclaimer.

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