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Financial Advisor’s Business Model Costing You Needlessly?

When I started this firm twenty years ago this coming April, I didn’t start with a blank slate. I started this firm already possessing eight years of experience in what not to do. Permit me to explain. 

I started my career with an insurance agency that disguised itself as a financial planning firm – never got a single client as I knew something was seriously wrong – so I lasted six months. Turns out these folks were selling stamp and coin “portfolios” for two to three cents on the dollar. If you gave them $50,000 they would acquire a block of “valuable” stamps and/or coins, actually worth approximately $1,500, then pocket the rest. As I said I never got a client while there.

Several of the “agents” from that firm then branched off on their own and as a computer expert they wanted me to go with them. At least these folks were honest, but it was all insurance and no investments. These guys discovered after starting this firm what has been done to their clients relative to their “investments” and it was devastating to all concerned.

I always wanted to manage money, but in these two places I learned the limited, albeit important, strengths of insurance as it exists and the serious shortcomings of life insurance as it is sold.

Lacking the ability to make investments, I went to a large investment firm, expecting to be taught to make money investing money for customers. Instead I was “trained” over six weeks how to make cold calls hoping to dupe someone into buying the product de jour of the day/week/month.

I was recruited to another, now non-existent, investment firm on the “cutting edge” of finance. That firm Drexel Burnham Lambert was, in deed, on the cutting edge of finance. So cutting edge, in fact, that they sold every day main street investors on the notion that risky debt was a suitable investment. Fast forward to 2008 – does risky debt to unknowing, unqualified, investors ring any bells in your mind?

As if that were not enough, DBL traded that debt for special customers with non-public information – this being illegal and called insider trading. I left disillusioned to say the least, over not only Drexel Burnham Lambert’s situation, but the state of the entire industry as well.

Then I went to work for an insurance company that offered real financial planning. I learned a lot. But the back end of that financial planning model ended at coaxing investors to put their money into high expense mutual funds and limited partnerships where they stood little or no change of making any money. My disillusionment continued and I reasoned that there had to be a better way. I decided to strike out on my own. There were a few independent financial advisors and planners back then, and a whole lot more now.

Most financial advisors business model looks something like this:

Client Contact: High touch, constant contact
Relationship: High cost, surface understanding, routine even when it doesn’t seem so
Investment Performance: Less than average due to lack of investment selection expertise and high costs
Expenses: High including commissions, management fees, and ongoing planning fees

Having personally experienced most if not all the ways that “advisors” could make money at the expense, or at least in spite, of their investor’s (poor) results, I knew we needed to do something different. Here is The Barfield Group model as I constructed it in 1990:

Client Contact: Moderate touch, contact when necessary.
Relationship: Relationship of substance, meaningful investment in understanding the situation
Investment Performance: Industry leading investment results over 15 years.
Expenses: Low costs – no investment commissions, fully disclosed investment management fees at 66% of industry average, upfront planning fee in most cases but ongoing fees only in highly unusual cases.

Now let me ask you this: Which model do you think gives you more money to spend as you choose, and meet your expenses in retirement? The high touch, high fee, low performance model? Or my modest contact, high result, low fee one? Then what are you waiting for? Contact me [email protected].

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More Stories By Dana Barfield

Dana is the president of The Barfield Group, which has provided industry leading Financial Advice, Investment Services, and helped people Plan for Retirement for more than 20 years. He is a frequent speaker and writer for a variety of industry, regional, and national publications on business ownership and wealth building related topics.

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