How much do you pay your financial advisor?
Most investors have no idea — and neither do their advisors. And what return do you get on your portfolio? That’s another question most investors and again, advisors, can’t answer.
These are problems.
GuardVest is a new Dallas-based startup looking to solve them by introducing transparency to the investing process. Users link up their accounts to GuardVest, whose freemium model allows seven days of free service, to see how fees, returns and risk stack up to benchmarks, industry averages, and peers.
GuardVest co-founder Audie Apple told Bank Innovation during a visit with us that the fee problem was crystallized in a 2013 Cerulean Advisors study, in which investors were asked what fees or compensation they paid their financial advisors per year:
- 40% of guesses were off by an average of $5,000;
- 31% didn’t know; and
- 29% said — incorrectly — that they paid no compensation.
The rate-of-return situation is no better.
“85% to 90% of investors get a statement that does not tell them the rate of return,” Apple said. “If you don’t know that, how can you have any idea how you’re doing?”
Apple described an incident when an investor set out to get his precise rate of return from his advisor and the result, eight weeks later, was a 60-page document explaining why it couldn’t be done.
“A lot of the industry, unfortunately, is hiding behind complexity,” Apple said, “and it’s very hard to get an objective second opinion.”
Why? Because if you go to another advisor with your portfolio and say, ‘How am I doing?’ they’re going to say you can be doing a lot better, because they want your business.
GuardVest tries to solve for this by allowing users access to any number of advisors for a free second opinion with no strings attached — users pay an $8.95 monthly subscription fee to GuardVest after the initial seven days — and users can even invite advisors they know to participate. There is transparency about the advisors’ histories, too, and GuardVest will be a building a valuable data set around this metric as time goes on. (Picture a GuardVest rating, a la TipRanks‘ ratings for analysts.)
The service launched in Dec. 2014 and has more than a 1,000 users with $350,000 in investments, according to Apple. It received $1 million in seed funding in 2013 from an investor who was impressed with the product. Actually, he was impressed that GuardVest cofounder Steve Scanlon cut $400,000 in fees out of the investor’s $70 million portfolio.
Guardvest will grow its userbase — it is in talks with AARP and a number of other groups to increase awareness of its service — and then use this attractive userbase to lure in advisors, who will pay a fee to have access to GuardVest customers.
The watchword here is transparency, and Apple compared the company to a “Mint.com for your investments.” Users of personal financial management software can attest that bank fees appear much more clearly in their PFM reports than on bank statements, and this is even more pronounced in the world of professional financial advisors.
Simply put, the deal you get from your financial advisors is not a good one, in most cases, Apple said.
“What they say is, ‘How about you put up all the money and take on all the risk, and we’ll split the returns? Oh, and if things go south, I still get my cut.’ What kind of deal is that?” Apple asked.
The kind that most people are getting, apparently.Like This Post