The best way to give up your ‘day job’ is to watch my Live Show this Thursday @ 8pm CST (9pm EST / 6pm PST) at http://ajcfeed.com ….

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Last month, I wrote a post that was a little scathing about what I call ‘middle-men’ and Warren Buffett calls ‘helpers’ … all of those people inserted between us and those fantastic “little pieces of American Business” [another Buffett quote … he means ‘stocks’] that we want to buy.

The problem is they cost us …

and, for every 1% in fees that they cost us, and our returns on $100,000 invested for 20 years goes down as follows:

That’s how much you LOSE from what you COULD have earned on that $100,000; scroll to the bottom [better yet, keep reading] to see what Warren Buffett actually estimates all of these middlemen (agents, brokers, advisers) to cost American Business – hence us!

In the meantime, let me cast my views on these two important topics:

Financial Advisers

I will lay it right out on the table for you: I don’t like ’em, don’t trust ’em … but, sometimes you can’t live without ’em. In fact, I usually advise people to see a financial adviser and, I have NEVER told people not to.

I’m just telling you my opinion 😉

I see four problems:

1. Commissions – in the USA, most advisers are tied in some way or another to selected funds and/or providers … they will not or can not, provide you with truly independent advice. Sure, they may be honorable and educated and ethical (of course, they all are) but would you go to an honorable and educated and ethical Lexus salesman and expect her to advise you to buy a Maserati?

2. Fees – I love them! Truly … if I pay a fee I know I should be getting what I need, not what some ‘freebie’ guy is selling me. Unfortunately, in the financial planning industry even fee-only advisers can have affiliations to selected providers via agency, equity, or simply because they only have experience with a limited product set.

3. Results – How rich is your financial adviser? How rich do you want to become? They should be as rich as you want to become x 10 [AJC: OK, as rich as you want to become x 1 or 2 for right now is OK … but, when you get half-way whomever you ask for financial/commercial advice should be as rich as you want to become x 5]. And, if they are stinking rich already, did they get there because they invested in the same way as they are advising you or because they run a damn good financial planning business (which requires more selling talent than investing skill)?

4. Product – When was the last time that a financial adviser – particularly a financial planner – said, “Look Bud, I’d love to sell you this really great financial product, but [takes you aside, puts his arm around you and whispers conspiratorially] what you really need to do is [insert sensible alternate investment of choice: invest in real-estate; buy your own home; put the money towards starting a new business; look for 4 or 5 undervalued businesses and buy their stocks]” ?

Personally, I’ve never been to a financial planner [AJC: actually once, nice guy – I went because I kind’a know him socially – but, as soon as he started talking ‘business’ I felt my skin crawl and couldn’t wait to get out of there!], I would rather look for a business/investment savvy accountant to run the numbers for me.

Invisible Middle-Men

These are the guys researching, packaging, distributing, and managing investments for you. The most ‘typical’ product that we are talking about here are Managed Funds, which all carry fees – most hefty, some miniscule – to cover the costs associated with all of these ‘invisible’ middle-men, as well as the financial planner’s commission (if you decided to go with Option 1., above after all).

The problem is that, even if you wanted to diversify [you shouldn’t!] you wouldn’t buy one of these funds through an adviser/salesman … you would go direct to, say, Vanguard’s web-site and sign up for their lowest-cost broadest-based Index Fund and start contributing … and, you wouldn’t need to come up for air for another 30 years!

Warren Buffett talks a lot about other middle-men; what he laughingly calls the “Helpers” (as in “I’m from the Government and I’m here to help you”) e.g. the stockbrokers, the hedge fund managers) and if you want to read his beautifully laid out reasoning from his 2005 Letter to Shareholders, check out this article.

In the meantime, I lead you to Warren’s stunning conclusion:

The burden of paying Helpers may cause American equity investors, overall, to earn only 80% or so of what they would earn if they just sat still and listened to no one.

Try compounding a 20% ‘loss’ over 10 years and see what you end up with!