While many financial advisors may like the idea of gold and offer gold “exposure” to clients in the form of an Exchange Traded Fund (ETF) of gold mining stock, physical gold is not an asset that most advisors have to offer in their investment products or that they recommend. If your financial advisor does recommend that you seek a reputable dealer that can offer physical gold, congratulations; you have an advisor who truly does care about your financial diversification by recommending that you own something that is likely outside of their investments and they cannot earn any management fee on.
By definition, a financial advisor is a professional who provides financial services to clients based on their financial situation. A financial advisor is generally compensated through fees, commissions, or a combination of both. A financial advisor is usually compensated through an hourly fee, a flat fee, a commission per trade, a load based on the amount invested in a mutual fund or annuity, or frequently a percentage of assets managed. A financial advisor usually has an independent firm, can be part of an insurance company, or frequently is employed by a bank. In this week’s article, we explore the fundamental fact that most financial advisors do not recommend ownership of gold outside of a structured fund.
A financial advisor promotes products that are “in-house”
How many times have you attempted to withdraw your money from the bank but the bank wants you to talk to their in-house advisor one last time to make sure you understand what you are doing? The last-ditch effort to keep your dollars in paper on deposit at the bank. The bank generates fees by leveraging your deposits at the bank through loans. This is called fractional banking. If the financial institution no longer controls your dollars, it can no longer generate fees through the fractional banking system. A financial advisor may typically suggest a CD, annuity, or a mutual fund to keep your savings under bank watch. A CD, annuity, and a mutual fund all generate upfront fees or a penalty to withdraw your funds before the contract period is expired. Frequently this could be years. Your financial advisor at the bank can’t generate fees from you when your money leaves that particular financial institution. Your banker or your advisor may truly be a great person and very smart, but their main focus is to keep your funds invested in their products that are endorsed by the bank or the firm. Physical gold is not paper so it is therefore not promoted by a paper institution. Your advisor or personal banker may own physical gold themselves, but physical gold is not part of the diversified portfolio discussion with you. Your banker or financial advisor needs to keep your funds in-house to generate their paycheck. The advisor or banker who is instructed to gather assets and keep them there has no financial incentive to advise a client to send their funds elsewhere. This type of setup has no track record of suggesting physical gold as a way of diversifying and protecting purchasing power.
While structured funds can offer diversification amidst different sectors, they absolutely do not shelter clients from risks to the financial system at large or a compromise of the digital system on which most all investments are stored.
Advisors and bankers want to keep the performance of the dollar a secret
I can’t tell you how many clients approach us and ask if they are diversified. They bring in their bank statements, IRA statements, and old 401(k) statements. The accounts are filled with different paper assets. Many of these assets have very exotic names. All of these assets are in paper and dollar-denominated assets. All of these assets are subject to the loss in purchasing power in the US dollar. The US dollar has lost 80% of its value against physical gold since 2000. The US dollar has lost 97% of its value against physical gold since 1980. $25,000 invested in physical gold in 1972 would be worth $1,182,600 today. $25,000 invested in physical gold in 2000 would be worth $162,000 today. How much would $25,000 in 1972 purchase today? How much would $25,000 put away in 2000 purchase today? The answer is much less. With stimulus, debt, and money printing today, this will only get much worse. The bankers and advisors have no incentive to talk about the dollar and lost purchasing power. Bankers and financial advisors have a financial incentive to keep you in paper products that can be moved around frequently to generate fees. The days of being the world’s reserve currency are numbered. Your banker or advisor may not want to educate you on the options of owning physical gold and moving your assets away from their control. The awful performance of the dollar needs to be kept hush-hush, and the physical gold conversation exposes that little game.
Your advisor may not truly understand physical gold
No one is a jack of all trades. No one has a crystal ball. Bankers and advisors may know ETFs, CDs, Treasury bills, savings bonds, money market funds, annuities, real estate, stocks, corporate bonds, junk bonds, and private equity. Possibly they don’t even know these, but they can sell and market these as a diversified plan. All of these products generate fees. Possibly you have seen the term AUM? This stands for assets under management. Doctors are specialized. Accountants should be specialized. Attorneys are specialized. Clients that want physical gold to be a part of their plan need someone who is specialized in just that. Many clients who want physical gold don’t fully trust the financial system, the stock market, the insurance industry, or paper assets. Bankers and advisors are trained to promote these exact instruments as something you can trust with 100% surety. They have to; it’s how they earn a living. There is a very strong possibility that your banker or advisor may not understand physical gold or understand how to own it.
Physical gold has been money for 3000 years. It has a long track record of holding your buying power. How long have ETFs, CDs, Treasury bills, savings bonds, money market funds, annuities, stocks, corporate bonds, and junk bonds been in existence? Listen, there is opportunity in many markets. Speculation can make you rich; it can also break the bank. Doesn’t it make perfect sense to have a portion of your assets in something that can’t be printed out of thin air? Doesn’t it make sense to have a portion of your retirement account outside of the banking system? Doesn’t it make sense to have a portion of your savings in your control? Physical gold in your possession or in a vault collects dust. It will be there when you and your family need it. Physical gold in your possession is no longer part of the banking system and does not generate fees. Fees unfortunately that dictate what is offered to you by your banker or financial advisor. These are your funds that your banker and your advisor control. In a market where there is such volatility and debt, a portion of your assets should be in physical gold and out of the banking system and out of the paper markets.