Why Your Financial Advisor Might Be Steering You Away from Gold

While many investors these days tend to opt for a DIY (Do-It-Yourself) approach to managing their own money, some choose to hand their money, and future wealth prospects, over to a financial advisor. And why not? Financial advisors leverage their specialized knowledge and professional experience to prioritize and advance your financial interests. So, we’re told. The problem here is twofold: ● Their expertise may not be as wide as most of their clients think; or ● Their clients’ interest may or may not be secondary to their own the financial interests of their firm or their own personal wealth pursuits. These two caveats become magnified when it comes to the issue of gold investments. If you’ve ever asked your financial advisor about gold, most have probably steered you away from it. They have their own reasons too. But if we cut to the truth behind their veil of reasons, we’ll find that gold largely puts them at a financial disadvantage. So, let’s explore this. Here are the main reasons why financial advisors do everything they can to discourage their clients from investing in gold. Gold Is Outside Their Commission Structure Financial advisors make money by selling traditional instruments like stocks, bonds, and mutual funds. They get a commission for each sale. But when it comes to buying gold, they can’t generate commissions since it’s outside of their structure. So, what does this mean? There's a strong chance they might not suggest buying gold, not because it's bad for your portfolio, but because they won't make money from it. This also means their advice might not always be the best for you, especially if gold happens to be the better choice among other financial instruments. Overall, it's important to think about why they're recommending certain investments over others. Lack of Control and Familiarity Financial advisors often stick to what they know best, namely traditional financial instruments like stocks and bonds, because it's easier for them and they can control part of the investment process. When it comes to precious metals, especially if you want to manage it yourself through something like a self-directed IRA, advisors might not have the expertise to advise you in that area. What usually ends up happening is that your financial advisor might prioritize their limitations in knowledge over your best interests, causing you to miss out on promising opportunities as a result. Limited Diversification and Investment Strategy Financial advisors often hide behind the veil of diversification, championing traditional financial instruments such as stocks, bonds, and ETFs, while unjustly sidelining gold as a diversification pariah. This narrow-minded investment strategy, overly reliant on conventional assets, systematically excludes physical commodities like gold from the investment equation. Such a stance not only betrays a lack of depth in understanding the multifaceted nature of diversification but also reveals an unwillingness to venture beyond the comfort and profitability of standard investment strategies. This ultimately stymies the exploration of a broader, more resilient investment strategy that incorporates tangible assets like gold, which can serve as a hedge against market volatility and inflation. In essence, the advisors’ rigidity could be seen as a disservice to your investment goals, stifling the potential for a robust portfolio that can weather financial storms. Gold Brings No Management Fees The straightforward acquisition of physical gold represents a thorn in the side of financial advisors, primarily because it doesn't line their pockets with management fees. This stark absence of direct profitability, owing to gold investments falling outside the managed portfolio domain, unmasks a glaring conflict of interest. The reluctance of advisors to endorse gold could be a reflection of their vested interest in maintaining a fee-generating system. And this may even exemplify a profound breach of fiduciary duty. In this context, the advisory stance is not grounded in a judicious evaluation of gold's merit but is instead tethered to the pursuit of personal gain, undermining the ethos of trust and client-centric guidance that should (but often doesn’t) define their profession. Preference for the Fiat Currency System The financial ecosystem's overwhelming bias towards fiat currency and paper assets is not merely a preference but a deeply entrenched doctrine. This preference for ephemeral, intangible investments, which mirror the economy's fluctuations, conspicuously sidelines tangible commodities like gold. Such commodities stand as bastions of intrinsic value amidst the fiscal abstraction, offering a stark contrast to the favored volatile assets. Perceived Complexity and Risk Financial advisors often hesitate to recommend investing in physical gold, citing perceived complexity and heightened risk. This hesitation is often based on concerns about gold storage and the volatile nature of commodity prices. However, this cautionary approach may be exaggerated, as it subtly discourages clients from considering the tangible security that gold offers and pushes them towards more conventional financial products that are conveniently favored by advisors. In short, the underlying motive for this aversion appears to be less about genuine concern for the well-being of clients and more about maintaining a status quo that benefits the financial advisors' own bottom line. Incentives to Keep Funds In-House Advisors’ firms generally want to keep their recommended products in-house. The reason for this is that it can generate fees for the advisor and their firm. Financial advisers may discourage gold investment because withdrawing funds to purchase gold diminishes their potential earnings. If they were able to sell and manage gold, their advice might be different. However, their primary concern is their financial interests, which may not always align with their clients' best interests. Your Fees Guarantee They Make Money Even When You LOSE Money First off, when your financial advisor suggests what to put in your portfolio, you really don't know if they're actually following their own advice. You don't know what they have in their own personal portfolio. But here's something you can be sure of: your financial advisor isn't the one taking the hits if things go south. If the market crashes or if inflation eats up the value of your investments, those losses are on you, not your advisor. EVEN WHEN YOU'RE LOSING MONEY, YOUR ADVISOR MIGHT STILL BE MAKING MONEY BECAUSE A LOT OF WHAT THEY EARN COMES FROM FEES YOU PAY THEM. Gold as Well As Broad Market Index Funds Makes Advisors Irrelevant No one can time the market with any reliable degree of certainty. Economists can’t. Investors can’t. And advisors certainly can't either. Your smartest move is to spread your investments around and avoid putting all your eggs in one basket. As for the best means of diversifying your stocks, what's more effective than buying an index fund? Index funds are easy—you just buy, hold on to them, and add a bit of money regularly over time. When it comes to spreading out the risk of your investments that come from traditional currency (like your stocks, bonds, and cash), buying gold is likely the best option you have. So, why pay a financial advisor to handle your investments if you can simply invest in an index fund and gold? These options can diminish the necessity of a financial advisor's services and give you more control over your money. The Bottom Line While financial advisors offer expertise and advice based on a wealth of professional experience, their recommendations often lean heavily towards traditional financial products that benefit their own financial interests or those of their firms. This bias can limit your investment opportunities, particularly in areas like gold investment, which doesn't generate management fees or commissions for advisors but could be a prudent choice for your portfolio. The stark reality is that your financial advisor might not have your best interests at heart, especially when it comes to investments that fall outside their standard recommendations. So, before taking on a financial advisor, or acting on their advice, take some time to critically examine the situation and whether their suggestions might (or might not) align with your financial goals and interests.

Why Your Financial Advisor Might Be Steering You Away from Gold

Bill Brocius Mar 15

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