The fine art of negotiating isn’t only fit for the board rooms and street vendors. People often don’t realize that they can negotiate their investments, and that if they aren’t doing so then they can be missing out on significant money.
When people don’t negotiate their investments, they allow outside parties to dictate what happens with the money, according to
, author of
“Americans are wasting billions of dollars on certain financial services that have no value,” Blum said in a statement. “For many individuals and families, that waste totals well into the millions. And it’s happening because most of us don’t recognize that investments are a series of negotiations. Investing is just as subject to negotiation methods as are buying a car, asking for a raise, or selling a franchise.”
According to Blum, people place too much trust in financial advisors without paying close enough attention to what advisors might be doing with the money they are given. Through negotiation, though, people can weed out unfair fees that will reduce the amount of money that could be added to savings.
Financial advisors and others on Wall Street are not looking to make their clients money, Blum pointed out; they’re looking to
client’s money, which is why they come up with hundreds of new investments every year.
“To protect your money, you must be knowledgeable about how the investment world works,” he said.
Here are some of the investor challenges that could be costing you money.
Watch for conflict of interest
Money-related conflicts of interest that people may run into include commissions, fees, sales quotas, and pay-to-play schemes, according to Blum. But there are others to consider. For instance, time is a big barrier as financial advisors might want to spend less time with each client so they can bring in new clients and more revenue. The hurry to move onto a new client could affect how an advisor handles your money.
“The reality is most financial advisors’ interests are not well aligned with yours,” Blum said. “The incentives driving his behavior are likely to steer him away from the very best solutions for you. By the very nature of the system he works in, he has remarkably strong motivations to sell you things and ideas for his own advantage.”
Although conflicts of interest aren’t likely to disappear, it’s still important to pay attention that they are there and they could be affecting your money.
Beware of “beat the market” promises
Stock prices can only change in the future because of surprises or unexpected events, neither of which can be predicted nor successfully acted on in advance. Financial advisors and brokers are always quick to remind that past performance does not guarantee future results. There is no way to actually know what the markets will do. So investors should be wary of people who claim they can predict the market.
“The bottom line is that an individual investor will have great difficulty doing better than the overall market by selecting individual stocks or bonds,” Blum explains. “Will some pickers be able to beat the market from time to time? Yes, but their success is primarily just a reflection of random chance. Anyone who tells you they can do it
the time is dishonest or deluded.”
Don’t get locked in
Investments that tie you in for the long term should be less desirable than short-term investments. People should be wary of agreements that impose exit fees or require significant notice before getting out.
“As an investor-negotiator, you must examine carefully how any proposed commitments will actually work,” Blum said. “It is your job to determine what will be advantageous and what might lead to disaster.”
He warned specifically against exit fees, which he called “penalties for trying to get your money back.” Some funds reduce the exit fee each year for, say, 6 years, when there finally is no fee for taking your money out of the fund.
Understand the risks of trading
While minor adjustments will be necessary as circumstances chance, trading too much incurs costs and taxes. Blum recommended looking at your portfolio as
instead of trading. Along with the costs of buying and selling a stock are trading commissions so that Wall Street can make a profit off you.
“Be careful to avoid all the ways that the industry has found to hide those charges,” Blum said. “Finally, you should never, ever pay a management or advisor fee to anyone who is in any way selling products or making any kind of commissions on the investments you make.”