My Conversion to INDEX FUNDS made me a better Financial Adviser

May 1, 2007

I have worked with and used managed managed/mutual funds for much of my professional career. Most, if not all my clients use them in some form or another. Early on in my career as an adviser I would try and stay afloat of all the funds which would come onto the market, promising above market returns via hedging, absolute returns or some other creative investing style. However, after much research and viewing of the “fund manager” market, I have come to the realization that most funds will become index if they are already not. The major exception to this are pure hedge funds, which in my opinion haven’t done all that well considering the risk return ratio applicable to them also their relatively high fee’s can be somewhat disconcerting.

I felt that as an adviser it was my responsibility to keep actively looking for the highest returning funds for my clients. Then I came to 3 major realizations about what I do and how I should go about it.

Firstly, I came to understand that most actively traded funds will eventually start to perform as as an index fund would, either because of their higher associated costs or that they fear not having certain stocks in their portfolio.

Secondly, once it occured to me that generally it would be in my clients interest to use INDEX funds, I found that clients appreciated their financial STRATEGY more than the actual investments themselves. This is because the STRATEGY is what sets them up for the future, it sets the path for their financial future and gives them clear direction. They can see how things will interact and work together to form a total financial package, from retirement funding to personal insurance to budgeting/cashflow management. ALL good financial advisers/planners should concentrate on STRATEGY first, the investments will follow.

Thirdly, having had my first 2 break throughs, it came to me that clients want contact, not everyday or even every month, but consistent contact even if you state at the beginning that it will be every 6 months, make sure it’s done. The clients will feel better that their money is being taken care of and actually being monitored and that you actually care about their situation. CARE, it’s a simple word but very powerful. I use to be somewhat of an “client churner”, new client came in, file was put away, next client please. It was a real, dare I say it, “car salesman” style of thinking and way of doing business, I didn’t particularly care about ongoing contact, big mistake, it’s usually the clients that you take care of that will provide you with the best leads down the track