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CWG Insight Series: Personal CFO Services Vs Big Bank Financial Advisors

Recently, one of our clients told his friends that he now had a Personal CFO. The ensuing exchange was fairly predictable…

”What is a Personal CFO?” the curious married couple asked.

“My Personal CFO is my single point of contact for all things financial in my life,” the client responded. “They believe that people know a lot more about making money than actually using their money efficiently to maximize what financial goals a person can achieve in life. I don’t have the time or the advanced finance knowledge to make sure I’m doing the right things. So they fill those gaps in my life.”

Alright, so maybe the client didn’t nail our pitch quite perfectly as written above, but he did know enough to direct his friends to our website where they watched the video on the front page. When they sat down with us one of them said “I want a Personal CFO, I need that”.

The couple already had a financial advisor at a nationally recognized financial services firm but quickly understood the stark contrast between us and them. After working through our discovery and assessment process, the couple became clients and now have a Personal CFO that executes actions on all aspects of their financial lives instead of only focusing on managing their investments. Due to Crown’s low-cost portfolio structure that was implemented, their annual advisor expense was reduced when compared to the big bank’s expensive management fees and portfolio holdings. So now they are receiving Personal CFO services while paying less than they previously were with the big bank advisor. This is not always the case, but it’s fairly typical from our experience.

The reality is that most people truly need Personal CFO services because our entire education system is set up to teach people how to earn money instead of how to budget, plan and invest.

The other reality is that the financial services industry is dominated by big banks and they can’t make much money helping people budget and plan. But they are masters at making money off their financial advisor clients’ investments.

Big banks make money off financial advisor clients in many ways. They accomplish this by incentivizing their financial advisors with compensation rewards or demanding they meet sales quotas with the threat of being fired if quotas aren’t met. This environment creates rampant conflicts of interest, and it’s important consumers are aware of these conflicts. I’ve listed some examples below:

  • Investment management fee: This is the fee that a person pays to work with one of the bank’s financial advisors. Pretty straight forward, and the fee is visible to clients on statements. No conflicts of interests here, but the fees are generally high, often 1.50% of the accounts value annually. Only about 20%-40% of the investment management fee is paid to the financial advisor. The bank keeps the rest. 
  • Steering clients to proprietary investment/products: Many big banks create their own investment products and invest their client’s money into them. Which sounds normal, right? Not everyone knows this, but all mutual funds and ETFs have expense ratios that take money out of the clients’ investments annually to pay the costs associated with running the fund. These expenses can be substantial, ranging from 0.05% on the low end for certain ETFs to over 2% on the high end for some mutual funds.  These fees do not show up on a client account statement so most consumers are oblivious. If the bank also created the product, they are now making money off of the client in both the management fee and expense ratio. Furthermore, the bank incentivizes the financial advisor to put their clients’ money in their proprietary products. This is a major conflict of interest as the advisor may steer the client towards the proprietary product instead of the best product.  
  • Steering clients to preferred investment/product companies: Banks control what investments their financial advisors can recommend to clients. This sounds good in theory, as the banks can perform due diligence and make sure investments are safe. The problem is, this control of the offering enables them to cut deals with say, a mutual fund company that wants access to financial advisor clients. The deals can be complex, but the crux will generally be if a certain amount of client assets go into the designated mutual funds then the bank will get a cut of the expense ratio. The bank then incentivizes the financial advisor, with compensation or sales quotas, to recommend the mutual fund. Everyone wins!...Except for the client who was recommended an investment that appeared to have no ties to the bank. This again is a conflict of interest
  • Cross selling to other banking products: Financial advisors are incentivized and often times required to refer clients to other parts of the bank for products and services. Mortgages, credit cards, business loans, car loans, etc., are all different ways the bank looks to make money. This can be convenient for the client, but not shopping around often leads to higher rates and fees. “But I’m a platinum preferred reserve customer so I get better rates, rewards and even free credit monitoring!” Don’t worry, they are making that up somewhere else too. 

Crown Wealth Group is truly independent; owned by a partnership between Nick, Tyler and Steve. Because of our independence we have eliminated these conflicts of interest for our clients. Furthermore, as Personal CFOs, we are “experts of other independent experts”. This means that we use other independent professionals in their respective industries to make sure that we find the best solutions and lowest costs when helping our clients find the right home/auto insurance, life insurance, mortgages, business loans, etc. We further bring value through executing upon the objective advice vs. putting the responsibility on the client.   

Our reality is that banks are always adapting. Right now they are losing clients to independent financial advisors like Crown Wealth Group and are shifting marketing strategies. In fact, when the previously mentioned couple become clients, their former financial advisor at the big bank reached out to them and said they also offer Personal CFO-like services. We couldn’t help but laugh a little. Even if true, I would fully expect it to follow suit with the rest of the bank’s advisory services…expensive and riddled with conflicts of interest.  

Make sure you or the ones you love are working with an advisor that puts the client first.   We are on a mission to help as many families as we can and are always just a phone call away.