Entrusting someone with the responsibility of managing your finances requires significant trust and confidence, especially considering the recent tarnished reputation of the financial and economic sectors. How can you be certain that your financial advisor is genuinely looking after your best interests and aligns with your financial plan?
Regardless of your advisor’s pleasant demeanor, you may encounter times when you fail to comprehend every decision they make or stay oblivious to certain practices and policies. Instead of remaining in the dark, consider these six hidden truths your financial advisor might be leaving untold:
1. THEIR CREDENTIALS
Just because someone identifies as a financial advisor doesn’t automatically denote expertise in financial matters. They might have studied economics or have prior selling experience used for recruitment – rather than actual financial proficiency. Furthermore, they might be trained more in selling strategies as opposed to genuine financial planning. Therefore, if you decide to hire a financial planner, ensure to hire the right one. Look for an advisor possessing a Certified Financial Planner title, which requires passing financial courses, a final examination, and ethics training.
2. THEIR REAL FEES
Prior knowledge about how your financial advisor earns is crucial. Some work on commission basis, some are fee-only, while others are fee-based. It’s important to understand where your money is going and whether your advisor has any bias towards recommending high-cost stocks or investments, especially if they operate on commission. Do not overlook the compulsory fees on your investments. Stay alert, find out where your fees go, and watch out for any undisclosed charges that could be levied.
3. THE QUALITY OF THEIR ADVICE
Your financial advisor may be more of a salesperson under the guise of an advisor, pitching products or services that are detrimental to your wealth. Even though you employed an advisor to guide you towards the best financial decision, the advice might not always be in your best interest. Advisors are expected to bring assets into their firms, sometimes prioritizing new client acquisition over your financial wellbeing. Verify if your advisor is part of a bigger team, indicating diverse expertise, as a single person might not master all areas of financial planning.
4. THEIR DEVOTION TO FINANCIAL PLANNING
Typically, the term ‘financial advisor’ brings ‘financial planning’ to mind. Regrettably, many financial advisors focus mainly on investment management, neglecting other crucial elements such as planning for retirement, taxes, or your estate. Be assertive about your expectations and ensure your advisor understands your long-term financial planning needs.
5. THEIR ABILITY TO OUTPERFORM THE MARKET
Your advisor might often claim to beat the market. Yet, after considering trading costs and fees, your investments might actually underperform. Don’t be fooled by attempts to chase high-performing funds, which could present an illusion of working in your favor. Experts commonly recommend diversifying your portfolio and opting for lower-cost funds.
6. THEIR COMPETENCE AT PICKING STOCKS
Ironically, being a financial advisor doesn’t necessarily mean they excel at picking stocks. Beware of advisors who consistently hype certain stocks. Rarely would single stocks provide substantial returns. Investing in individual stocks isn’t the safest strategy to grow your investments. If an advisor suggests this, consider re-evaluating them. Mutual funds or index funds are usually more cost-effective.
Navigating the investment world can be overwhelming and confusing. While some can manage their own financial planning, there are instances when expert advice becomes necessary. But remember, someone claiming to be a financial planner may not be genuinely qualified or have your best interests at heart. Like many other aspects of life, you need to be vigilant and in control of your finances so that you can identify these hidden truths that your financial advisor might be keeping from you. Ultimately, it’s essential to ensure your investments and plans are tailored to your needs.
Do you work with a financial advisor? Has their assistance been beneficial, or have you stumbled upon any inconsistencies?
