I get asked a lot about hiring an investment manager. These companies are extremely common, often well respected and seem like a great deal. On the surface, they appear to be experts in their field who will manage your retirement accounts for a small fee or seemingly no fee at all. While I’m not 100% against using this kind of service, here is the caution I give all my friends.
There some upsides to this kind of investment planning. Most important: They help you get started! They help you get everything set up. They will encourage you to start investing. They will do some basic planning and run a few numbers. And the initial cost is low. That’s the pro column.
Now let’s talk about some of the potential downsides.
1. Commissioned Sales (but not obviously)
I worked in commissioned sales for years. Years. I have nothing against it. But it’s a certain kind of thing. When you walk onto a car lot, into a furniture store, or into your department at Nordstroms, a commissioned salesperson greets you. They can be extremely helpful, making suggestions and giving you information. But you know, at the end of the day, they want you to buy something. Because they earn money when you do. So you filter their suggestions knowing they have a financial motivation in your choices.
The trouble is, we don’t always know which professionals have financial motivations. We trust them in a different, less discerning way if we don’t understand why and how they are getting paid. Investors present information in a way that seems like they get paid the same no matter how we invest with them, but do we know WHY one investment is recommended over another. With a realtor, it is clear they make more money the more we spend.