After several sacrifices, some good decisions, commitment to austerity and a bit of luck you managed to generate a surplus of money in the relationship between your income and your expenses. Congratulations! You met the first objective! Is it time to party? Not yet. If you toast so early, you probably fall asleep before the party.
As we said, you achieved the first objective: you entered the savings universe in a country as complicated as ours, where inflation and recession tend to stalk you like crows in the desert. But not to relax. The road does not end here, it just begins. In terms of investments, everyone who lives on Argentine soil has a double obligation: to earn money and know-how to take care of it.
Like most people who have savings and want to invest them, the first thing they do is ask for advice or go to a financial institution (bank or stock market) for advice, as a road map in today’s column we will provide recommendations to survive and even stand out in a jungle full of unscrupulous predators. That said does not aim to discourage you but to warn you that you always have to think about your interests and your financial health before acting in one way or another. Let’s see why.
The easy not garpa
In the column entitled: “Hello, nice to meet you, what should I invest in” published in October last year, we analyzed the search for cheap advice, which gives bad results in most cases.
There we detail how the motivations of those who ask for this type of advice and those of the chosen expert quickly entered into conflict: while the former sought access to investments reserved for specialists obtaining free advice, delegating responsibilities and avoiding spending time for his financial training, the advisor thought only in what he could earn, regardless of the real risk the investor was willing to take or how much effort he had made to generate the savings.
What would be the alternative to find a type of advice worthwhile? There we go.
Tips to find a financial advisor aligned with your interests
Above we talk about a “jungle of unscrupulous predators” to illustrate the global financial system. Do we exaggerate to cause impact? A little, although in my opinion, not too much. The financial illiteracy of many of its clients is often a temptation difficult to avoid for the most informed account executives, who in general are under pressure from their employers to aggressively withdraw money from their clients through commissions or the sale of financial products, trying not to notice or accept them as natural.
Consequently, we recommend:
1) Do not stop asking the awkward questions: A friend argues that it is better to get red first and not green later. We don’t have to be ashamed to ask our potential financial advisor some of the following questions: What is your resume and what operations (track record) did you do in the market? Do you do with your money the same thing that you recommend to your clients? How many years of experience do you have operating and how many advising? Do you have references from other clients that you can provide me with? Do you have more experience advising investors with an aggressive, moderate or conservative risk profile? If the advisor candidate is offended or refuses to answer, better keep looking.
2) Be clear in decision making: Atypical and immature behavior is observed in many poorly trained investors, which is to avoid making it clear when an investment is made on the advice of the advisor and when it was a personal decision. Entering that gray area, the client feels entitled to blame the account executive (sometimes internally or to close people, without saying anything to the expert) and avoids self-flagellation, since it does not tolerate failure when it is their own. Those who act like this often hide the mistakes and hang the medal when an investment works. Learning to tolerate error and not feeling the ego hurt by a piece will allow them to grow as investors, operate with more patience and improve their results. They will then become investors who analyze the range of possibilities and make their own decisions.
3) Know the fees to be paid: It is very important to know how our financial advisor or the entity for which he works makes money. There are four typical ways:
a) Quarterly, the semi-annual or annual payment for their services. Generally, the account gives 1% per year, but it can almost always be negotiated. The account balance is taken at a certain date and the percentage amount is calculated.
b) Payment per operation: It goes from 0.50 to 1% of the amount operated in each purchase or sells order made. If it is bought and sold in the short term, the commission can be negotiated downwards, as if operations are carried out with certain frequency.
c) Payment of commissions through the purchase of financial products: They are usually extra in the income of the advisors. They sell the service of active management of an investment portfolio and charge up to 4% of the total operated. It is a very expensive service that does not always pay off, although they are usually assumed by specialists who operate large investment funds (hedge funds) and whose results are constantly evaluated by the market, which in theory forces them to give the best of it so that customers earn money.
d) Payment of a percentage of the profits obtained: A contract of this type is usually signed when the advisor is attentive to our portfolio and is active to maximize our benefits. It is known as the success fee (commission on the success of the operation). The financial advisor only charges when the investor earns money. A percentage is taken that can quietly be around 20% of the profits once the bank commission or the operating table is discounted. This is the a priori model most oriented to a win-win relationship, where either party wins or does not. Although it may not seem like it, it has its risks: the advisor may have other clients that interest him more and leave our portfolio to his fate, knowing that, if we lose, he will not lose. It will simply stop winning. On the other hand, you may be tempted to bet on high risk and high volatility assets.
As you can see, finding a good, honest and independent financial advisor is not easy. Therefore, the best recommendation is to train to join the new group of self-directed investors who use the Internet and innovations in technology to “bridge” the financial advisor and operate on their own by executing purchase and sale orders on online broker platforms.
The cards are drawn. You no longer have excuses. In financial matters, comfort pays dearly, while learning has its double prize: more knowledge to feed the mind and, in the long run, more income to enjoy your time.