Even though the best financial consultant you could ever hire by an extremely wide margin stares back at you every day when you look in a mirror, for those of you absolutely unwilling to learn how to do-it-yourself, here are ten tips to help you find that one financial consultant out of every 1000 that actually is fairly impressive.

To help me formulate this list, I considered some of the absolutely useless investment strategies I had learned at the world’s leading investment firms as well as the ridiculous focus of some boutique firms I had spoken to when formulating the long tail investment strategies that constitute the curriculum of my SmartKnowledgeU campus.

About five years ago, as I was just starting to develop and test my investment strategies that I now use today, I interviewed with a smaller, boutique investment firm in the Bay area of San Francisco that has a stellar reputation in the mass media as being on the cutting edge of revolutionary investment strategies. I thought to myself, if anything can reveal how far the top investment firms have evolved in their strategies to incorporate a changing information landscape to identify better investment opportunities, it will be my interview with this firm. Needless to day, I was stunned by the fact that this firm’s strategies basically mirrored the same, old, strategies of every investment firm on Wall Street.

To paraphrase portions of my second interview with a top manager at the firm, it basically went like this:

Interviewer: Tell me where did the Dow ( a major U.S. index) close today?

Me: I don’t know. Why is this important?

Interviewer: I want to get a feel for if you understand the markets.

Me: That’s a valid concern, but what does knowing where the Dow closed today have anything to do with the larger question of understanding global stock markets? First of all, the Dow is a horrible proxy for the U.S. markets as a whole. The S&P 500 is a much better proxy for that.

Interviewer: It’s still important that you know these things.

Me: Okay, then let me ask you this. Do you think Mark Cuban, George Soros and Warren Buffet (all billionaires that actively invest in the stock markets) can answer that same question?

Interviewer: I would think that they definnitely could.

Me: Well, at least with Warren Buffet you are wrong because Mr. Buffett is on record that he doesn’t follow any of the major indexes closely enough to tell you where they stand on a day to day basis. And as far as Mr. Cuban and Mr. Soros, I highly doubt that they know either. But let me ask you this, where did the FTSE in London end up today? Where did the ASX in Australia close today? Where did the Hang Seng in Hong Kong close today?

Interviewer: (Silent)

Me: Since the U.S. hasn’t been the best performing market, even among developed markets for the last quarter of a century, if knowing the exact numbers of market indexes is important to you, shouldn’t you be able to answer my questions? I don’t particularly feel that knowing exactly where the Dow closed today is relevant to making wise and profitable investment decisions on behalf of clients.

Interviewer: Ok, ok. Let’s move on to a wider perspective question then. Do you think we are in a bear or bull market?

Me: In what market?

Interviewer: The U.S.

Me: Since 9/11 (this conversation took place shortly after 9/11) we’ve definitely been in a bear market but I think it’s more important to consider where we can make money such as in the Asian regional markets.

Interviewer: Well that’s not what our clients are interested in. They want to know that you understand the U.S. markets.

Me: With all due respect, I disagree. Clients only ask questions about what they are familiar with. Therefore, the fact that your clients only ask questions about the U.S. markets merely means that they don’t understand the far better opportunities available in Mexico, Brazil, the UK, Germany, Japan, Korea, China, Australia, and India. I think the best strategy would be to provide more education to clients to help them ask the right questions of us. If we teach them about where they should be looking, then I think they will ask better questions that improve the returns of their portfolios.

Needless to say, this top manager at this firm proceeded to ask about five other questions that he strongly believed was important to making intelligent investment decisions but that I felt either were irrelevant or too unfocused to be of any worth. I was astounded that this firm had managed to gather billions of assets from private individuals. After witnessing the incompetence of this top manager at a top investment firm in the United States, I was merely convinced that millions of people have been duped and bamboozled by very strong salesmen that are able to effect the appearance of investment experts but in reality, know close to nothing.

The only problem with this scenario is that since most people do not know the right questions to ask, they never learn that their trusted advisors know next to nothing. If investors don’t know the right questions to ask, investors can ask a hundred questions and still not receive any answers that will help him or her assess the level of that financial advisor’s competence. Ask better questions, receive better answers, and improve your returns three fold, four fold or even more.

So here are 10 questions to get you started:

(1) I’m not a fan of mutual funds. I know all about their hidden expenses besides the overt fees they charge, plus I don’t like the fact that a lot of foreign mutual funds take a beating whenever the masses have the slightest fear about a pullback in the markets. I think owning individual stocks is a much better strategy, especially in foreign markets. Tell me what your strategy to select individual foreign stocks is.

(2) Look, I’m going to be honest. 6%, 7% even 10% a year doesn’t cut it for me. What strategies do you personally use to give me a good chance of earning 20% or higher without assuming great risk?

(3) Where do you think will be the best performing markets for the next five years?

(4) This question is a follow-up question to (3). If the answer to question three was, for example China and India, then ask, How much of my portfolio should be in Chinese and Indian stocks and why?

(5) If answer (4) does not make sense in response to answer (3), probe with more questions. For example, if the answer your financial consultant tells you is 20% tops, then ask, If you tell me hands down that the best markets for the next five years will be in India and China, why are we only allocating 20% of my portfolio to these markets?

(6) I don’t want the standard diversification strategy applied to my portfolio that you apply to every other client here. I think it’s a terrible way to build wealth and don’t agree with it. Look at all the great individual investors that were able to build wealth by determining what assets were the best and then concentrating their investments in just a few asset classes. Even if you tell me ,”Look at Warren Buffet who was a buy and hold buyer”, today we live in different investment times. The horse and buggy was the best way to get around at one time but not anymore. Investing has changed, and what worked in the past is not the best way to invest today. What are the best asset classes to be invested in for the next five years and why?

(7) What effect will the currency markets have on the best and safest places to invest this year and why?

(8) How are you using technology and the internet to improve portfolio performance for me. What novel strategies do you use that leverage technology and increased accessibility to top-tier financial, economic, and political information to grant me the best chance of earning stellar returns?

(9) A lot of the best performing markets are emerging markets that also are prone to huge corrections. How will you safely invest in these markets for me? And remember I don’t like mutual funds and I don’t think mutual funds are safe either.

(10) Tell me 3 things that you do that no one else at your firm does in managing my money.

To understand what many of the answers of these questions should be, read all the articles posted under the wealth literacy section of this page.  If you receive intelligent answers to all the above questions, you may have just found yourself a winner.

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J.S. Kim is the founder and Managing Director of SmartKnowledgeU™, a comprehensive online investment course that uses novel, proprietary advanced wealth planning techniques and the long tail of investing to identify low-risk, high-reward investment opportunities that seek to yield 25% or greater annual returns.

Posted: Sunday, February 4th, 2007 @ 6:52 pm
Categories: Most Read Posts, The Biggest Investment Myths, Wealth Literacy.
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