Are You Asking Your Financial Advisor These Questions?
Coming from 20 years of working in the marketing and advertising industry for global fortune 500 companies, there is a constant debate about the notion of “Pay for Performance” rather than “Pay for Service”. When you are dealing with companies that provide you strategy or strategic services, I have always believed there should be some vested interest in those companies to see that strategy succeed. It’s not a good feeling losing your hard-earned dollars, and then having those that advised you profit regardless.
The above notion is a debated topic for good reason. There could be many other variables in play and most companies choose different tactics and plans simultaneously to grow their business. So, it becomes difficult to pinpoint what the specific reason is for a less than satisfactory result. However, when we are talking about investing our money for a profit, this is much easier to decipher. Your advice to purchase something typically comes from one main source (ie: a financial or investment advisor), and the performance is easily measured given by the return on your funds invested.
For most people that decide to invest their hard-earned money, many of them choose to use a financial advisor. The sad truth in Canada is that many people who call themselves financial advisors, are actually commissioned sales people. Most times, you will be paying fees regardless of the earnings of your portfolios, and your advisor will get paid regardless of how well your money performs. Listed below is just some of the fees that could come into affect for your investments and your returns.
- Financial advisor fees paid by you the investor. This is typically a percentage of the amount of assets you have invested with them
- Fund Management fees. Almost all mutual funds have a management fee that is paid out to the fund manager. This is not directly paid by you, but it does impact the fund performance. This fee could be over 2% in some cases.
- Commissions to Financial Advisor. In many instances, Financial advisors could get paid by the investor, as well as the fund or company that provided the investment (ie: mutual fund company).
- Fees associated with buying/selling.
Given the average return from financial markets over the next decade is expected to be about +7%, it is clear to see there is not a lot of wiggle room to make a good single digit return investing in traditional investments such as stocks and mutual funds. In our last blog post “Real Estate Leverage is like Compound Interest on Steroids” we described how investing in real estate with the banks dollars only requires a fraction of the growth rate that the stock market requires to achieve the same returns (ie: if you purchase a home and hold for the entire mortgage, then a +1% yearly growth in real estate, would provide you a stronger return than +7% yearly growth in stocks or mutual funds.
- Does the person giving the advice have something the gain by giving that advice (ie: commissions bonuses, etc).
- How vested are they? Are they looking out for your best interests and getting you the highest returns?
- How does that person invest their own money? – Are they just a salesperson or would they put their own money in the investment they are advising?
- What qualifies them to give investment advice?
- What is the average rate of return they provide to clients? – Do they have a track record on their performance for investors?
- Assuming your investments break-even, what is your actual return on investment? Ie: even in a break even situation you are likely paying fees associated with the investment, resulting in a lose situation.
In the end, we just caution you to be informed and go into any investment eyes wide open and completely transparent on your expectations. This is your hard-earned money and the decision on where to invest it ultimately comes down to you, so knowledge and understanding is key.
Regardless of any advice and fees paid out, risk should always be discussed about any investment as well. Our philosophy is that risk is something that could (and should) be mitigated with any investments you do, otherwise it is similar to gambling. We only invest in properties that profit regardless of the housing market increasing or decreasing – even if there is a market correction, you the investor should still be profiting month-in and month-out. For more information on the risks of real estate investing and mitigating those risks, please read our past blog “How Do You Manage Fear vs Risk with your Investments?”.
As Real Estate investors, we also believe our partners and investors’ money and return is more important than our own. We would not invest any of our partner’s money into an asset we would not feel comfortable putting our own money into (we will even invest right alongside you). In addition, we also have a policy that we do not get paid until our partners get paid first; this means that we would not profit at all until our partners get their full initial investment paid out first. We have never not paid out any of our investors, and typically provide returns that exceed +12%, and many times exceed +20% return on investment.
Visit us at www.mkproperties.ca and our page MK Investment Group on facebook or LinkedIn to learn more about how we invest in real estate to profit in both an increasing or decreasing housing market. Or contact us if you would like to learn how we are providing double digit returns for our partner’s and clients year over year.
Martin Kuev is a full time Real Estate Investor, Realtor and Investment Coach. He has worked for some of the most respected and well-known global organizations including Coca-Cola, Kraft and Nestle. With a multi-million-dollar real estate portfolio and team he built over the past decade, he left the corporate world to have the flexibility to spend time with his family, continue with his real estate investments and help others build their long-term wealth.