You know that old saying about what happens when you assume?
Typically, bad things occur when you make certain presumptions based on incomplete information. While you can often stumble upon a positive outcome based on a lucky break, taking steps to insulate your investment strategy against common assumptions can enhance your chances for success.
Assuming An Advisor Has Your Best Interests At Heart
There are all different types of investment advisors out there and (shockingly) not all of them have your best interests at heart. Many times advisors are motivated by financial considerations to place you in high fee mutual funds, annuities, or illiquid assets such as a private REIT. There are billions of dollars languishing in these types of products and they are typically “sold” rather than “bought” by consumers.
Unscrupulous advisors place a higher priority on their own compensation rather than the best interests of their client. This leads to a conflict of interest that can easily be identified by asking the right questions (see here) about compensation, transparency, and liquidity.
Don't get me wrong, everyone in the investment business is motivated and/or biased in one way or another. Even fee-only advisors, like me, are motivated to attract and retain clients as a primary source of revenue.
Rather than being overly trusting that someone has your best interests at heart, start out every new relationship with a thorough understanding of their investment philosophy, fees, motivations, and scope of authority. That way you aren't caught off guard or find yourself in an uncomfortable position that is costly to exit and damages your trust in professionals that do place your interests first.
Assuming This Time It's Different (Or The Same)
As much as we like to study history and make comparisons to other time periods, every situation is unique. Nothing is going to happen the exact same way, nor is a certain pattern going to change based on your one-sided analysis. There are a million moving parts to every single trading day that continues to evolve with the advancement of technology and psychology of investors.
