The Anomaly of the Advisory Services in America: A letter to the advisory industry on what it should do to help average people

Looking for advice on how to build assets and achieve financial independence?

You’ve got lots of company here in the United States, where we face the contradiction of the advisory industry: If you need help to accumulate assets, you usually can’t get it. But if you don’t need help, it’s easy to find help.

A husband and wife I know, after years of hard work along with successful saving, investing and reasonable consuming, now have substantial assets. That’s even though they started with almost nothing 30 years ago. Lots of financial advisors now want to provide them with services.

Yet millions of American couples and individuals—also hard working and ready to save—can’t find an advisor.

Why?

You Need Help? We Can’t Help You

In much of the advisory industry the professional’s overhead costs mean it is difficult to deliver services to those starting out with little in assets. The professionals often can’t make money on small accounts.

This is not to put all the blame on the advisory industry. It is also difficult for the average retail bank client with few assets and needing help to accumulate more. Go to a bank and look at offered services. One finds many ways to go into debt. There seems to be few banking services helping people starting out to accumulate assets Correction: Years ago some banks had their own mutual funds. Unfortunately, they were awful. They were loaded with outrageous expenses. Returns were egregious. Those funds were long ago sent to the fund cemetery, a place where survivorship bias—a bias that allows the fund industry not to count bad funds that go out of business—permits the industry to skew the industry’s overall averages.

The Problem

Why is it important, possibly critical, for the advisory industry to solve this problem and not lose another generation of potential clients? I know people who are today facing a horrible retirement with Social Security as their sole income. Most never had an advisor. Dear, Advisory Industry: The nation, as the average person lives longer, has a problem. Can you help solve it? Here’s some proposals for advisers.

*Invest in potential and preventing disaster

A defense of wealth in America or any other country is that it is fluid. It can be created. It can be destroyed. It is the same concept of competition: Things change. The worst can be first and even the Cubs win a World Series. Some wealthy individuals and families today won’t be so in a decade. This loss of wealth is a theme of some great novels such as Thomas Mann’s Buddenbrooks, Booth Tarkington’s The Magnificent Ambersons and Frank Norris’ Vandover and the Brute.

In the next generation, many of today’s poor will prosper and some will be wealthy. In part it will be owing to advisors who effectively help average people. Whether it is saving an Amberson or helping create the next Horatio Alger, the advisor can be key.

*Find Ways Out of Darkness

The advisor can start clients on the right road, even if they only have a few dollars. Help them understand the important credit card issue of revolving vs. transacting, a lesson that can save tens of thousands of dollars over a lifetime. Educate them about the power of compounding. In the beginning, it seems so insignificant, but it can reward the patient investor. The commitment to dollar cost averaging—especially in bad times, when many otherwise good investments can be found marked down in bargain basement bins—can pay off over the long-term.

A sage advisor I know is maximizing this idea with his daughters. As teenagers, he had them open up IRAs with their babysitting dollars. Instead of 20 or 30 years of compounding, they’ll ultimately have 40 or 50 years of accumulation. Santa Maria! That’s max compounding. If a client doesn’t have a lot to invest, but is ready to invest every month, try to work with him or her. In the beginning, the engagement may be unprofitable for the advisor. But what about later? Then a relationship can bloom. When a client who started with an advisor when he had nothing does accumulate substantial assets, who will the client turn to when he or she is ready to buy much more in financial products and services? The client will remember who worked with him or her when the account was small.

*Be a Teacher

Historian Henry Adams once wrote that no one can measure the value of a teacher, who can have an almost unlimited influence. Who will know of your work? Sir Thomas More, in A Man for All Seasons, tries to persuade a would be pol to instead go into teaching. He asks More who will remember a great teacher. More replies, “You, your pupils, your friends. God, not a bad public that.”

Advisors can be teachers, financial educators with an influence that can seemingly go on forever. This can be true of every sector of the financial services industry. How much are all of us influenced by John Templeton or John Bogle or Benjamin Graham? And would there have been a Warren Buffett today without his teacher, Benjamin Graham? These teachers inspired us. We passed their wisdom to others and made millions of lives better.

*The Advisor as a Teacher

Advisors can do more than practice a profession; they can teach a way of life that allows families to live well and pass on investing principles to generations unborn. These principles can help families achieve personal and humanitarian goals; from a first house, to sending children to college for the first time in the family’s history, to having the means to provide generous gifts to charities. The advisor can make a huge difference in millions of households. And that can make our society a much better place.

About The Author

Gregory Bresiger

Gregory Bresiger is an independent business journalist from Queens, New York. His Personal Finance articles have appeared in publications such as The New York Post & Financial Advisor Magazine. He is the author of the eBooks “Personal Finance For People Who Hate Personal Finance” and “MoneySense”.