Beware the Hoboadvisor
I read a great term a few months back on Twitter. It was Hoboadvisor. Basically, a combination of a human advisor and a roboadvisor. It was not meant to be a compliment. After reading the tweet I started thinking more about this term and realized quite a few advisors I know fall into this category.
Let’s start with the characteristics of what makes up a hoboadvisor:
- They outsource every single bit of very limited asset management. You know, the client has a choice or one or two investment models to choose from.
- They only offer investment management. Well, maybe some throw in insurance sales as the commissions there are rather enticing.
- Oh, the investment management is only on the assets they manage, not on your current 401k balances or other outside savings. You’re on your own for that since they cannot charge for it.
- Their client service model is to send out a monthly stock market newsletter written by a ghostwriter, provide quarterly statements, and have a one-hour meeting once a year where performance is discussed, but not goals.
- Charge a nice 1% fee on the assets they have someone else manage. This, of course, doesn’t include the separate fee charged by the asset management company, which can easily be another 1%.
- Are available from 9:30AM to 4:00PM Monday through Friday, but only if the market is open and they aren’t on the golf course.
I figured it made sense to do a quick comparison of what I provide:
- Now, I admit I use outside money managers to help me design and execute some of my portfolios.It makes sense because these firms spend all their time and resources only on asset management. However, the difference with my portfolios and those of the hoboadvisors is I am still involved in the overall design of the comprehensive models and I do not believe in only giving clients choices of one or two models. All portfolios reflect the individual client.
- I look at all the client’s investments, not just ones I manage. This includes IRAs, 401k balances, stock options, savings, and more.
- You’ve probably seen my Platinum Service model (if not, click here). Asset management is only one component of what I provide to my clients.
- My service model is quarterly meetings, weekly performance reporting emailed directly to the client, and you know I send out emails I write myself. No one else would take credit for this content!
- My fee is a simple one of $4,800 annually. That’s it.No percentages. No commissions. No revenue sharing. Nothing else.
- All my clients have my cell number and know they can call me at any time.
What do I think of hoboadvisors? I love these guys! I mean, they are old school and great for forward-thinking planners such as myself.Their lack of attention and transparency has been great for me and I hope they keep it up because it only makes it easier for me to grow as a firm. This especially applies to clients with complex financial lives, but are still years away from retirement. You know, Gen Xers and Millennials.
And if you don’t think clients want more than a hoboadvisor, I know an advisor who recently lost a set of clients paying annual fees in the mid-five figure range. I guess the client realized the fees were a bit much for one meeting a year where the advisor talked at them instead of with them the entire hour.
At the end of the day, clients want to be understood and treated like people, which is what you freakin’ are! While it is fine to use technology to improve efficiencies behind the scenes, make sure you as a client are NOT treated like a number, or worse, a deposit in the bank account. Or, maybe the hoboadvisors should treat clients this way. Because if you have a hoboadvisor, well, they are great for the growth of my comprehensive financial planning practice.