It takes a lot of trust and a bit of faith to ensure someone else with your finances. This is especially the case when you consider recent years, in which the financial and economic industries had been shed in a less than favorable light.
How do you know if your financial advisor truly has your best interest at heart? Or how do you know if their plan aligns with yours?
Regardless of how nice your financial advisor is, there are simply times when you may not understand every move they make or you might just be unaware of various practices and policies. Instead of sitting back confused or unaware, consider these six things your financial advisor isn’t telling you.
1. Their Qualifications
Just because someone tells you they’re a financial advisor doesn’t necessarily mean they’re well versed in the world of finance. Sure they may have studied economics, but they may be hired more because of their sales experience than their actual finance experience.
Moreover, even when they are hired, their training may have more to do with sales tactics than financial planning. That said, if you’re going to hire a financial planner, make sure you’re hiring the right one. Look for someone who has a Certified Financial Planner title. They at least have to take financial courses, take an end exam, and undergo ethics education.
2. What They Really Charge
First things first, know how your financial advisor gets paid. Some are commission based, some are fee-only, and others are fee-based. Not only is it good to know where your money is going, but it’s also important to know if your advisor has any incentive to recommend high-cost stocks or investments, which they would should they be commission based.
Another important aspect of financial advising is the fees you might be paying. Apart from the fees given to your financial advisor, there’s also usually fees on the money you invest. Be wary of high-cost fees on investments and make sure you aren’t paying an erroneous amount. Be vigilant in asking exactly where your fees are going and if there are any other fees or costs you need to be aware of.
3. If They’re Really Giving You the Best Advice
As I mentioned earlier, sometimes your financial advisor is really a sales person in disguise. They may be required to advise you to use various products or services that could just serve to cost you money. Moreover, although you may hire a financial advisor to help guide you in the best direction possible, you might not always be receiving the best advice. Advisors are supposed to bring in assets to their firms, hence they may be less interested in how you’re doing and more focused on bringing in new clients.
Another aspect to consider is whether or not your financial advisor is working alone. Usually one person is incapable of being an expert in every area of financial planning, which is why it’s more beneficial to work with an organization that has multiple people on your portfolio.
4. They May Not Be as Focused on Financial Planning
Usually, the first thing you think of when you hear financial advisor is financial planning. In fact, that’s likely the reason you decide to hire a financial advisor in the first place. Unfortunately, most financial advisors are focused primarily on investment management. While that’s an important aspect of your finances, it’s not more important than planning, whether that be for retirement, taxes, or your estate.
Be sure you’re upfront and diligent with your financial advisor about your expectations and what you want from them. Make sure they’re aware that financial planning is of importance to you in the long run.Make sure you know all of these things before you hire a financial advisor. Click To Tweet
5. They Can’t Necessarily Beat the Market
Throughout your relationship with your advisor, you may hear them say that they can outperform the market. While there may be times when this is feasible, more often than not, after trading costs and fees, you’ll find that your investments actually underperform instead. If that’s the case, your advisor may try to chase those past performances by replacing those lackluster funds with ones that do better. Ergo, you have the illusion that your advisor is working for your benefit.
However, even if those funds do well on the rare occasion, most experts will tell you that it’s more beneficial to diversify your portfolio and stick to lower cost funds. A good tip in this situation is to simply feel your advisor out, ask them up front what kind of funds they’d recommend; you’ll know that they have your benefit in mind depending on their answer.
6. They Aren’t Expert Stock Pickers
It may seem contradictory to their profession, but just because someone is a financial advisor, doesn’t mean they’re great at picking stocks. Be cautious of an advisor that constantly tells you about a fantastic stock. It’s rare that you’d be able to receive great returns on single stocks alone. Moreover, simply picking individual stocks to invest in isn’t exactly safest way to build your investment. If an advisor suggests this option, you may want to rethink them. A better bet is investing in mutual funds or index funds at a lower cost.
If you’re anything like me, the world of investments can seem a little muddy. And while there are some people who are able to handle their financial planning, there are times when it gets too complicated, and the assistance of a professional just seems like the better option.
Unfortunately, just because someone says they’re a financial planner might not mean that they truly are or that they have your best interest at heart. Similar to many aspects of life nowadays, you must always be wary and in control of your own finances, so that you can be aware of and spot some of these things your financial advisor might not be telling you. At the end of the day, you need to make sure that your plans and investments are right for you.
Do you have a financial advisor? Have you found them helpful, or have you discovered any discrepancies along the way?