5 Things Your Broker Doesn't Want You to Know

The investment industry can be a confusing one to navigate for a lot of your Average Joes. As a result, many turn to the services of a licensed broker or financial adviser to help them determine how to build wealth and prepare for retirement. While most of these individuals are well-meaning professionals, they're not always the only or even the best solution for advising you on how to invest your dollars. But you won't hear that from them. Here are five other truths you'll never hear your broker say.

1. He's a salesman, not a stock analyst.

Your broker may sound like he knows a lot about financial markets and investments. He may show you colorful charts and graphs and use some financial jargon. But the truth is, outside of having to pass a few exams, there's no specific education or training required in order to be able to sell securities. That's because, at the end of the day, your broker's job is basically a sales one. His company has people who research individual stocks, mutual funds, and other financial tools. Any insights he shares with you are likely just what he's learned from reading his corporate literature.

2. He may have ulterior motives.

Brokers are often encouraged to and/or rewarded for selling certain mutual funds or other products. He'll never suggest to you something that's a BAD investment. But he may have his own selfish reasons for suggesting something that might not be your BEST option. On top of that, he may also have a quota to meet. Even if your investments are performing well, he may try to sell you a different fund or additional product. That's because he only gets paid when you make a transaction. Though incentives and pay schedules like these are the norm, they aren't the rule. So it might be worth investigating whether your broker's firm offers these types of rewards for suggesting certain investments or meeting goals.

3. He's way undershooting how much you should allocate to international investments.

Most brokers recommend a diversification model that includes putting between 10 and 25 percent of your portfolio in international investments. This reflects a phenomenon known as "home country bias" where individuals tend to think their home markets are safer and will earn higher returns. Not true. International markets can certainly fluctuate, just the same as those in the U.S., but really no more so. In fact, over time the results have been quite similar. What's more, the U.S. once represented over half of the global market, and this is no longer the case. A portfolio that holds closer to 50% in foreign investments more closely represents the global ratio and leaves you better poised to shoulder both economic and political risks.

4. Diversification involves a lot more than foreign, domestic, large- and small-cap funds.

Your broker will definitely talk to you about diversifying your portfolio. And he may ask about other aspects that make up your net worth, like your home and business interests. But he's likely only going to focus on what he can personally offer to sell you. The truth is that stocks, bonds, and mutual funds are only part of the picture. Don't overlook the many other investment options out there, such as real estate. While other investments and ventures may be perfectly valid and often quite profitable choices, as far as your broker's concerned, they're completely irrelevant.

5. The best investments may be the ones he could never sell you.

Not only will your broker not initiate any transactions relating to non-traditional investments, he likely won't even be able to help you with any that you propose. Take for example international real estate. It's a great investment option, especially if you have the ability to hold on to the property for a while. There are also a number of tax advantages to buying foreign property. However, your broker and his firm don't have the ability to research these kinds of investments for every single client. This doesn't mean it's a bad or risky investment. It's just beyond their capacity to handle it.

So they'll simply have to send you elsewhere. The good news is that for those who want to make international real estate part of their portfolio, there are a number of options available. You just might need to find a different custodian who's better equipped to work with a much more informed and entrepreneurial client. I'm not saying you should fire your broker just yet. But you should definitely go into your next quarterly review with an open and inquisitive mind. Nobody knows better than you what's best for your future.