The Audacity of Traditional Financial Advice
John P. Duncan
Before getting into how to build wealth faster, smarter, and safer; I want to talk for a moment about the way most people go about building their assets. The way that is promoted by advisors worldwide and guess what? Does not work! It serves the financial industry, but does not serve the clients. Companies offering this advice build skyscrapers while clients end up with a fraction of true wealth potential and never are immune to loss. They create co-dependant relationships that most never are able to get away from.
What is the traditional approach to building up resources?
1. Get a good job or start a business
2. Cut expenses to the bone
3. Pick investments
4. Diligently save month after month, year after year
5. After 40 years you might have something to support yourself
6. Buy some insurance if you have anything after savings
What is wrong you ask?
First, there is no speed to this model. They say that if you take on more risk then you will get potential for higher return. They love this one, it kind of eliminates responsibility for loss when that risky investment goes south.
Next, there is little to no defense in this strategy. Even after 40 years, you as the client are still risking your money. How much is the investment company risking? Nothing! And, don’t they make money regardless of your outcome? They even have an army of attorneys on staff in case you choose to complain about anything.
The reason you feel vulnerable, is because you are! It’s not just your imagination, the losses can and do occur. How many people in 2008 saw half of the money evaporate after playing by the rules and following this common advice?
But, the market has came back, you say. It has, for sure, but it takes a lot longer to get back after you lose because you are working with less dollars.
I’ve had a underlying disdain for the financial industry since I saw how it really operates. Like governments, it operates for it’s benefit always, not yours. I know that may sound harsh, it’s the truth. Always has been, always will be. Truth be told, I believe the biggest reason I have had so much success in financial consulting is because I despise the industry as much as my clients.
The system is a necessary evil, but don’t ever be fooled by thinking that this machine was built for your benefit. The easiest way to view the financial world is to look at it as a casino. The companies are bookies and the house always wins.
But let’s get back to the real issue and why it is a path to only a fraction of your real potential. In later blogs, you will dig deeper and this will make total sense. For now, consider these inherent problems…
1. You are the only one funding (No Leverage)
2. You assume all the risks of performance
3. You get NO tax advantages (Deferral is NOT an advantage unless tax rates drop!)
4. You receive little to no guarantees
5. You assume risk of not living to retirement
6. You assume risk of getting sick and draining accounts
7. You assume cost of carrying insurance at meaningful levels
8. You assume costs of advice and investments
All this risk for what exactly?
Can you really feel any more secure after 20 years? Are you still vulnerable to loss? Did you create any current or future tax advantages?
Your account balance may grow, but how much of that is your own dollars, how much is growth?
To be totally clear, I’m not hating on the system, it is what it is. What I’m attempting to provide you with is a different perspective so you can see it clearly and use this to your advantage. When we move on to much more efficient planning ideas, you will know why such programs are so powerful when compared to the basic ideas shown here.
The whole idea of building any level of success is to create a sense of certainty. Isn’t that really the only reason to stack up resources? Otherwise, we could live hand to mouth and not know if we were going to eat tomorrow. These traditional planning models are not built to increase security on a meaningful level for the client.
People with large savings in traditional accounts, put that money there. 999 times out of 1000, they earned it somewhere else. They did not make it in this model. The biggest accounts I’ve ever been exposed to were people who received stock options from their corporations. Hundreds of millions of dollars. Was this from the traditional method of planning? Hell no, they actually were taking money and diluting the stock value for the “average” player. Nothing wrong, perfectly legal; but do you know even one person who has created large level of security using the traditional approach to money?
I’ve literally worked with thousands of families over the years and have never seen the traditional approach produce more than a fraction of the amount that could be built by going contrarian to the common client, common advisor approach.
You see, because you are on your own with funding, risks, taxes, fees, and more; you can never build real security. Most people never come across this type of planning so just accept their fate and try to be thankful they have what they have. This is great in itself, but if I asked you whether you would rather retire with $500k or with $20 million, which would you choose?
When I talk about this, I always think of the lone landscaper. He’s great at what he does and his clients love his work. The problem is he can never do more than a handful of houses a day. If he gets sick, his company is out of business till he gets back to work. Contrast that with our great landscaper duplicating himself by training many others to do the work like he does. Creating an army of people who can see a ton more homes per day and even show up when he is off sick, or vacation, or whatever. In the first example, little to no financial strength is created versus in the second, he can grow and grow; eventually able to do whatever he wants, when he wants.
A good question to ask yourself, do I even care about the money? Many people, myself included, really love what they do and are not that concerned about the financial rewards. The next question could be, do others rely on me to be financially strong? Could be family, employees, clients, whoever; for me this is my primary motivator to make financial strength a high priority. I would be letting those that I care about and support down in a huge way if I was not creating higher and higher levels of security and abundance.
One point that I think about often is that I would really doing my clients a disservice to play small, play scared, and not build an empire. My expansion is their expansion. It affords higher and higher levels of resources, ideas, and security. I know of too many advisors who treat their business as a JOB, wanting to just get by and pay bills. The problem, just like traditional advice, is one small interruption and they are done. Seen it happen many times and the real losers are the clients who are trusting this person with their Money, their Security, their Peace of Mind.
To summarize, the average planning done for clients is far from providing expanded security and abundance. The system is built for the companies, not the clients. The products and services they provide are necessary in planning but not going to keep you from being vulnerable from start to finish. It’s not any advisor or firm, it’s the whole system. As we move forward, you will discover how to use the system and tilt the game back in your favor. For now, just know that it gets better and you were right in feeling a little uneasy about that half baked advice you have received over the years. The best advisors and teams these days, are using the system to their client’s advantage by not buying into the obsolete company training which leads to amatuer level planning at best. They do their own research and combine many different programs to solve problems in an efficient, cohesive, and comprehensive manner.
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