The following is a guest post by Neal on what to know before hiring a financial adviser… When you want to improve your finances, you may wonder if you should hire a financial adviser. During strong markets, anyone can make money. And during weak markets, everyone tends to have losses. For the most part, all ships rise and fall with the tide, financial adviser or not.
So what’s the point of having a financial adviser?
(I have my own answer to this question and it may surprise you.)
But before we get to my answer, let’s explore the wild and wonderful world of financial advisers and our clients. Oh and by the way, in case you’re wondering a financial adviser and a financial advisor (notice the “e” vs the “o”) are interchangeable. Financial adviser is the more traditional spelling if you will, but you’ll see both spellings. To-may-to, to-mah-to, po-tay-to, po-tah-to.
1. Financial Advisers are Salespeople.
I know. I’m a financial adviser. We sell products and ideas. We sell baby….we sell.
In fact, most of our training is in sales, not financial planning and not investment management. If you read “How to Become a Financial Planner” you realize this is true.
A financial adviser might have specialized training as a Certified Financial Planner (for example) and that does provide education that helps us plan. But we’re still salesmen. So when you go to hire a financial adviser, just keep that in mind.
We gotsta make a living and that means most of us are going to sell you something if we can. Show me a financial adviser who has been in the business and survived more than 10 years, and I’ll show you a pretty sharp salesperson.
2. We don’t have a crystal ball.
If you really expect your financial adviser to beat the market year in and year out, you should get a job as a stand-up comedian because you’re funny – and not in a good way. You can read more about producing alpha here.
If your financial adviser does great is some years, she’ll probably do crappy in other years. It’s this risk/reward thing you’ve heard about. Unfortunately, it is the way the world works. Professional financial advisers definitely have a wide range of experience, performance, and client involvement. The same goes in any profession.
Before you hire a financial adviser, it’s always recommended to do some due diligence before forking over your money. Don’t be afraid to ask hard questions. You want to find a good fit after all.
3. Financial advisers have feelings too.
If you cut us…do we not bleed? If you tickle us…do we not laugh?
Yes…. we do.
However, and this is a huge one, if we’re any good, we don’t let our feelings interfere with our work.
This is one difference between us and you that explains why the best of us are worth what you pay us.
I’ve been in this business for over 25 years. Do you want to know how many times smart (I mean super smart) clients call me up with ideas that are super dangerous? How about, “all the time.”
When the market is strong, we tend to all think we’re financial geniuses. Folks want to take more risk and that’s a bad idea. And when I say “bad”, I don’t mean it in the Michael Jackson cool way either. I mean, bad as in…really dumb.
Let’s say you work out a 20-year investment plan that ends up with you sipping Sake on some sandy beach when you retire. You look at a number of 20-year periods and see that the historical worst-case is a loss of 40% for an all-equity portfolio. That’s too steep for you. So you select a portfolio with less potential risk – and lower historical worst-case losses.
Everything runs great – until the market takes off. At this point, left to your own devices, you get greedy and put everything into the market. The moment you do that, your risk skyrockets. And if things don’t turn out, you might get wiped out.
But if you hire a financial adviser that’s good (and listen), this won’t happen. She’ll remind you of your long-term plan and bring you back down to earth. Don’t thank us….it’s our job.
4. A Financial adviser should know what works.
I’m speaking here about long-time veterans. Experienced financial advisers have worked with clients for decades. Thus, we’ve seen every mistake known to man. We’ve seen what happens when people get greedy or afraid. And we’ve seen what happens when people try to predict the future or ignore it. Plus, we’ve seen what happens when people don’t force their children to be financially responsible.
When you hire a financial adviser, tap into their knowledge and experience. You’ve got one financial life. We’ve been part of hundreds of them. No, we’re not any smarter than you are. We’ve just changed more financial spark plugs than you have. We know the right wrench to use.
5. We know what’s good for you.
That’s right. You read it right. We know what’s good for you and you don’t.
How many times have you gone to the dentist for a cleaning only to find out you need a new crown? Me too. It might hurt but you’re better off by knowing the truth and taking care of it…right?
The same thing happens in financial planning. You come into the office thinking everything is “wunderbar”. We stick a financial thermometer up your……I mean…in your mouth……and we tell you what medicine you need to start taking.
We tell you:
Which retirement plan to participate in.
How to protect your beneficiaries.
How often to update your trust and what to look for.
How to balance your portfolio.
How to use Inherited IRAs.
6. We aren’t perfect.
We’re just people. The vast majority of us are honest and want to help you. But a few of us aren’t. You’ll have to use your own judgment to find the right person to work with.
As nice and honest as we are, we make mistakes. We work with a lot of people and we forget things. When we do…don’t get angry. Just remind us and be kind.
Bottom line, being a financial adviser is the best small business idea I could think of. I love being in it. Not because I think I make you more money – although I try to do that as best I can. I’m proud of what I do because I help people get what they want out of life with less risk and less cost.
I charge for what I do and I’m worth it.
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