Editor’s Note: This is the first in a series of articles
“We've been so busy keepin' up with the Jones’… Four car garage and we're still building on; Maybe it's time we got back to the basics of love.” — “Luckenbach, Texas” by Waylon Jennings
Where does your investment advisor live, and what does he/she drive? What are his/her spending habits? And why should you care?
David John Marotta writes in MarottaonMoney.com that there are 10 important safeguards regarding hiring a prospective financial advisor. One is avoiding an advisor with a lavish lifestyle.
“Your best defense is to engage an advisor whose daily practices reflect ways to safeguard the money under his or her fiduciary care,” says Marotta. “As part of identifying such an advisor, make sure there is a mutual understanding that an ostentatious lifestyle is not a valid financial goal.”
Does your investment advisor purchase showy goods like vintage autos and pricey art? If so, according to Marotta, you may want to reevaluate your relationship.
“Wealth is what you save, not what you spend,” he says. “That’s why an ostentatious and excessive lifestyle is a red flag for an investment advisor. The rich buy investments … not liabilities like boats and cars.”
“If Bernie Madoff had bought businesses and investments, he would be able to make restitution of those initial investments. He might even be able to pay a fraction of the gains he claimed to have.”
Madoff owned a $7 million New York penthouse and enjoyed a $3 million Hamptons home on the weekends. This was in addition to a $9.3 million mansion in south Florida. On the French Riviera, Madoff owned a $1 million chalet and operated two boats. He frequently spent $100,000 a month on chartered jets and limousines. In his apartment sat a Steinway concert grand piano. He bought his brother a vintage Aston-Martin, which was used as a company car.
The spending was unbelievable. All on the backs of trusting investors. Obviously, Madoff’s personal wealth management habits were at odds with those of the vast majority of his clients. His own personal investment accounts were not that sizable given the level of his spending.
Madoff’s lifestyle also begs an important question: while he was jetting about, who was managing his clients’ money? Actually managing, monitoring and rebalancing private wealth portfolios requires that an advisor spend countless hours daily, glued to a computer and multiple screens, reading and studying the movement of securities and analyzing industry trends.
If you see your advisor glad-handing at public functions every day or vacationing for months at a time, someone else is probably managing your money. Who that “someone” is and if they actually have your goals and risk tolerance and best interests in mind is another good question you may want to ask.
Margaret R. McDowell, ChFC, AIF, a syndicated economic columnist, chartered financial consultant and accredited investment fiduciary, is the founder of Arbor Wealth Management, LLC, (850-608-6121 — www.arborwealth.net), a fee-only” registered investment advisory firm located near Sandestin. Arbor Wealth specializes in portfolio management for clients with $250,000 or more of investable assets.