As a successful entrepreneur you will be hounded by parasites. Chief amongst parasites are financial advisors.
Don’t get me wrong, there are many excellent ang honest financial advisors. And many of the smartest investors in the world use financial advisors themselves. The reason the profession exists is because it adds enormous value.
But there are also many conmen in the game.
The classic line is : “Give me all your money. I’ll keep it safe whilst you concentrate on making more money.”
When you hear this line run for the hills. You’re about to be crooked.
When my first ship came in I had no idea what to do with the mountain of cash in my bank account. My parents had never discussed money with me (money was a taboo subject when I grew up).
My first instinct was to buy a Ferrari. Lucky my wife blocked me.
My dad suggested I meet his financial advisor. My dad has a financial advisor? First I’d heard of him.
So I met the guy. Great guy, so friendly and nice to me. Must be my personality and handwriting.
Long story short he convinces me to put a third of my wealth into a fancy asset swap product offered by a reputable and well know financial institution that is hedged against all negative things that could ever happen and that can only be redeemed in five years, preventing me from being tempted to spend it on things like Ferraris.
Lekker. Sign me up. What could go wrong?
Fast forward four years and I’ve just walked away from from the biggest professional flop of my career. Suddenly I’m very grateful that my advisor to have convinced me to put away my money somewhere safe.
So my friendly advisor visits me at my home. The good news is my investment has appreciated 50% in four years. Not as good a performance as the JSE but better then a kick in the head. And yes, I can redeem the investment as soon as the five years have passed. Just eight months left to wait.
Awesome. High Five me for having brilliant financial nous.
Three days later I get call from my advisor. “Sorry, turns out the fineprint of the investment gives the fund the right to extend the redemption period by ten years. They’ve exercised their right due to liquidity problems.”
I say, “Don’t you know and understand all parts of the investment? Isn’t that why you’re paid to be my advisor?”
Guy, “You signed a disclaimer with us. You will notice in the fine print that you specifically acknowledged all responsibility is yours. So very sorry this happened but there is nothing we can do. And anyway its your fault for being in a jam.”
The lady doth protest too much, methinks.
It would be fair to say I ranted and raved for many weeks thereafter. My own financial situation meant I simply had to get the cash. I eventually sold the investment on the “second hard market” at a discount of 40% to face value. In other words over five years during which global markets boomed, my assets actually reduced by 9%.
Awesome. So glad I paid for financial advice.
I considered suing both the fund and the advisor. Turns out the fund had done nothing illegal. The fine print did indeed say they could infinitely extend redemption dates. Apparently this is not fraud.
The advisor had not been malicious. He had also been duped. His fault was gross negligence. I could have sued for malpractice but then I’d be sucked into a vortex of negative energy.
Life is too short for that.
But I wanted my fees back. After much fighting and arguing I eventually threatened to have him judged in the court of public opinon.
At least then no one else would fall victim to his lacksadaiscal attitude to client’s investments. I was 35 at the time, plenty time to recover.
But what if I’d been 65? How many people retire and cash in their retirement funds only to find “fineprint” and advisors hiding behind disclaimers?
The advice I have for all entrepreneurs is this:
- Never outsource decision making for your financial security. You must take responsibility for your own life. Just because you hate numbers doesn’t mean you should outsource numbers.
- Understand portfolio diversification. This is the rule of thumb:
- One third property
- One third cash
- One third listed shares
- If you must use an advisor, ask your personal bank or use a national network such as PSG Konsult or NFB Private Wealth. At least then if the underlying financial institution tries to screw you you can escalate your complaint to the chief of a big company, i.e.: Jannie Mouton at PSG Konsult. An unscrupulous fund manager won’t listen to you, you are a small mouse. But it will listen to the chief of a massive distribution channel, especially if that chief is Jannie Mouton.
Also published on Medium.