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“The moment there is suspicion about a person’s motives, everything he does becomes tainted.”
—Mahatma Gandhi
I have been in the real estate Game for quite a while now. But there is a secret in my past that many of you may not know… I am a recovering investment advisor.
Wow! Does that feel good to get off my chest!
Now, if you can find it in you to forgive me, I’d love to explain why I am sharing this with you.
In my time as an investment advisor, I was able to do some interesting things with alternative assets. But over time, I began to notice some of the darker aspects of being on the wall street side of investing.
I had to leave.
In doing so, I found a passion to right this wrong. I wanted to help people find other ways to invest their money that are more open, honest, and with better returns.
That is when I found multi-family syndication.
But even more than that, I want to take this chance to explore the dark side of investment advisors, and why you should be wary of them as an investor.
Suitable Investments
As an investment advisor, one of the things that they teach you is that it is not about getting the best investment for people.
This may be shocking to hear, but it is true.
The goal of the investment advisor is not to maximize your return. It’s not about making you as wealthy as possible or shooting for the best performance.
Their job is to find you what is “suitable.”
This comes from the SEC, the agency in charge of regulating the market, trade, and stocks.
These regulations make it so your investment advisor doesn’t have to work in your best interest. They just have to find you something suitable.
But how are you supposed to reach your investing goals with just “suitable.”
Suitable is not excellent. It’s not poor either. Suitable is just average.
This pushes investors into traditional products that are often way riskier.
Assets like mutual funds and stocks.
But stocks can often drop in value 30%-50% overnight.
That’s not taking a sustainable, conservative approach to investing. It puts you at higher risks for a lesser reward.
Again, it all comes down to what the SEC says is appropriate. What box you fit into.
I don’t know about you, but I don’t want suitable. I want excellent investments that help me reach my goals.
Wall Street Fees
Wall Street has a reputation for its fees.
This may be something you are already aware of, but it is shocking how much all those separate fees add up.
It is a death by a thousand paper cuts.
In his book money: Master the Game, Tony Robbins talks about how the average fee for a mutual fund is 3.2%.
That is huge!
But you will never see a fund that’s fees are advertised that high.
The reason… they don’t have to!
There are so many hidden fees in these funds.
marketing fees, administration fees, cash drag fees, and more.
Now does that sound ethical to you? I didn’t think so.
That was one of the reasons I left my days as an investment advisor behind me.
On top of that, if you have a money person, there is another layer to this.
Say you have a money manager. They take another 1.5-2% off the top of your investments.
So with an average of 6%-7% gains on the stock market, the 2% that goes to the money manager added to the 3% from the fund itself takes away almost all of your gains.
Now does that sound suitable to you?
The large investment companies are making money off of you buying into the funds and doing what they can to keep you invested.
They charge you crazy fees to cover their high overhead costs, and they do so with a lack of transparency.
That is not how I wanted to have my money invested.
Limitations for Alternative Investments
This was the most frustrating part of working as an investment advisor.
Working at a big firm, there were all these limitations on the kinds of alternative assets you could get involved with.
You couldn’t get into anything real. Anything physical.
That’s right… no actual real estate.
To me, that was bonkers!
Almost everything that you could get involved with was paper assets with no real physical asset behind them.
Stocks and bonds and other paper assets aren’t all bad. However, if that is all that you are invested in, what do you actually own?
You own a share of something intangible.
Another aspect of this is counterparty risk.
If the company you are invested in disappears, or the market crashes, what is left from your investment? Nothing but the piece of paper.
Your asset could be worthless or gone entirely.
This is a house of cards. If all your assets are paper, it could all come crumbling down.
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