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By Bob Clark, Investment Advisor Magazine

As I’ve written many times, I’ve come to believe that a financial advisor’s job is to protect clients from themselves (succumbing to greed and fear in their investment decisions, and procrastination in their saving decisions), from the financial service industry and the financial media, by extension. Once again, I’m not saying that everyone in the financial services industry is a bad actor; but, as we all know, there are powerful financial incentives to put their own interests ahead of their clients’, and some folks can’t seem to be able to resist the temptation.

Now, the traditional client/advisor communications are usually effective in saving clients from their inclination to buy high and sell low. But in my experience, the biggest reason that retail investors need to be protected from the financial services industry is because they don’t understand how it really works.

And while most advisors do (I say “most” because it’s my observation that it takes an advisor between 5 years and 10 years of industry experience to figure out what’s really going on), they rarely make a formal effort to transfer this insight to their clients — which is a shame, as this understanding is the real key to financial success.

Here’s what I tell my clients these days:

1. Despite what you hear in the media, no one can time the markets

Okay, there may be a few folks who really do seem to have a gift for picking stock and/or market direction. But do you really think that you could hire one of them for 1% (or whatever) of your investment portfolio? Those folks run hedge funds, and/or get paid a lot of money by very rich people for their advice. Most end up managing their own money. But one thing they don’t do is give their insights away for free on TV or in Money magazine — or over the phone to brokerage clients. So you can pony up $195,000 or so for one Berkshire Hathaway A share, and get Warren Buffet’s market wisdom, or we can continue to take what the market gives us, investing for the long term and keeping risks as low as possible.

2. The retail brokerage industry makes money on fees and commissions

Their profits come from fees and commissions paid by clients (and fees paid by mutual funds and insurance companies to sell their products to clients). Consequently, the industry has a big incentive to sell you expensive products as often as possible. And some of them are very good at coming up with convincing “reasons” to do so. Over time, the biggest drain on your investment portfolio isn’t market fluctuations (assuming you can avoid selling when your portfolio is down): it’s ongoing high fees and expenses, year after year. An advisor’s job is to get you the investments you need, for the lowest possible prices — and help you to stay invested, even when friends and family are panicking and selling. Remember, when your portfolio goes down, we make less too: we are in this for the long haul with you.

3. The brokerage industry wants you to take on more risk

In addition to retail clients, big brokerage firms work with very wealthy clients, too, such as pension funds. They are managed by very sophisticated investors, who are constantly trying to increase their returns while reducing their risk of losses. To do that, they sell off stocks, or funds, they deem to be too risky. But if they sell risky stocks/funds, someone has to buy them. It’s the brokerage firm’s job to find those buyers, who are usually retail investors just like you, or mutual funds that will be bought by investors like you. Our job is to keep your risk as low as you need it to be, and not get tricked into buying riskier investments.

4. The brokerage industry does not work for you

Stock brokers work for their brokerage firm; insurance agents work for their insurance companies. Even mutual fund managers work for their fund company. Therefore, they are legally required to work in the best interest of their employers, not their clients. Some of them do try to work in their clients’ best interests, but as we have noted above, there can be large financial incentives to do otherwise.

In contrast, Registered Investment Advisory (RIA) firms and their employees have only one duty: to act in the best interest of their clients. And we use our knowledge of investments, the markets and the financial services industry to do just that.

During volatile markets and economies such as we have now, we work to keep your investment expenses as low, and your risks as low as possible and still achieve your long-term financial goals. We’ll also work with you to adjust your portfolio risk levels (and your goals) to levels with which you are comfortable.

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About LRPC’s Monday Morning Minute

Lawton Retirement Plan Consultants, LLC (LRPC’s) Monday Morning Minute is crafted to provide decision-maker’s with important information about the economy, investments and corporate retirement plans in a format that allows a reader to consume the information in less than 60 seconds. As an independent, objective investment adviser, LRPC has access to many sources of research and shares the best and most relevant information with its readers each week.

About Lawton Retirement Plan Consultants, LLC

Lawton Retirement Plan Consultants, LLC is a Milwaukee, Wisconsin-based independent, objective Registered Investment Advisory (RIA) firm providing investment advisory, fiduciary compliance, employee education, vendor management and plan design services to retirement plan sponsors. The firm currently has contracts in place to provide consulting services on more than $400 million in plan assets. For more information, please contact Robert C. Lawton at (414) 828-4015 or bob@lawtonrpc.com or visit the firm’s website at https://www.lawtonrpc.com. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser.

Important Disclosures

This information was developed as a general guide to educate plan sponsors and is not intended as authoritative guidance, tax, legal or investment advice. Each plan has unique requirements and you should consult your attorney or tax adviser for guidance on your specific situation. In no way does Lawton Retirement Plan Consultants, LLC assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations. Investors should carefully consider investment objectives, risks, charges and expenses. The statements in this publication are the opinions and beliefs of the commentator expressed when the commentary was made and are not intended to represent that person’s opinions and beliefs at any other time. The commentary does not necessarily reflect the opinion of Lawton Retirement Plan Consultants, LLC and should not be construed as recommendations or investment advice. Lawton Retirement Plan Consultants, LLC offers no tax, legal or accounting advice and any advice contained herein is not specific to any individual, entity or retirement plan, but rather general in nature and, therefore, should not be relied upon for specific investment situations. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser and accepts clients outside of Wisconsin based upon applicable state registration regulations and the “de minimus” exception.