Let’s get this straight right out of the gate: I am PRO-Financial Advisor. I’m a financial advisor for a living. I think it’s a great idea to use an awesome financial advisor to help fine-tune, supercharge, and add expertise to an individual’s financial planning process. I think there’s immense value to be gained from working with a qualified professional advisor. There are hundreds of great financial advisors that are well-trained, knowledgable, motivated, compassionate, and able to help with individual specific needs and scenarios. The problem is that there are thousands of poorly trained, uneducated, lazy, dispassionate, selfish advisors who are more motivated by improving their own financial situation than by helping clients improve theirs.
The motivation behind highlighting some of the lies that financial advisors tell is to help people vet financial advisors they may be considering working with. While this is not an exhaustive list, it is a good place to start. I think the list that follows highlights some of the more egregious claims and deceptions that are commonly promulgated by the financial advice industry.
You’re Not Smart Enough To Do This
I’m Such A Great Advisor I’ll Beat The Market
You Won’t Pay Anything. There Are No Fees or Costs
I’m A Fiduciary (sometimes)
I Only Get Paid If You Make Money
You’re Guaranteed Not To Lose Money
You Should Be More Conservative As You Approach Retirement
You’re Not Smart Enough To Do This
Usually, advisors don’t come right out and say this, but they sure try to make you feel like it. If your advisor (or potential advisor) is making you feel small and not taking the time to answer your questions, that’s a huge red flag. An advisor should have the heart of a teacher in addition to extreme conviction about their opinions. If an untrained person devoted a lot of time and energy to perfecting their own financial plan, then I’m sure most of them would be successful. There are plenty of people without finance degrees and CFP® marks that do a fine job of taking care of their own plans.
I’m Such A Great Advisor I’ll Beat The Market
Just no. Even if your advisor is the one picking your investments (most of the time they are limited to a list that their broker/dealer or firm provides them) they are not going to beat the market all of the time. Some advisors lean heavily on the idea that they have some secret, almost Gnostic-level, revelatory information that no one else in the world has. That’s just ridiculous. If your advisor was beating the market all of the time they’d have better callings elsewhere than managing your money. Check out this study from 2018 if you want more evidence.
You Won’t Pay Anything or There Are No Fees or Costs
This sounds too good to be true because it is. We all have heard that there’s no such thing as a free lunch. There could be revenue-sharing agreements in the background, fees that are taken out of client investments directly, expenses inside investments, surrender charges, interest penalties, and so much more. If it sounds to good to be true make sure you ask what you’re giving up and what the true risks are. Even fixed annuities and CDs come with risks that can impact your financial goals.
I Only Get Paid If You Make Money
This is usually also only ever implied because unless you’re investing in a hedge fund (which still charges you if the value goes down) advisors aren’t allowed to only bill you on the growth in an account. A famous firm says “when you do better, we do better” and that’s closer to the truth because if they’re billing on total assets they make more money when the asset values go up and less when the value goes down.
You’re Guaranteed Not To Lose Money
The word guarantee should raise your eyebrows when talking to anyone about finance in general, and especially when it’s about personal finance, and doubly especially when it’s a personal financial advisor talking to a client or prospective client. Guarantees might exist in some forms of investments, but that indicates that it’s a very complicated investment product that the advisor themselves may not even know all about. It’s probably a lie at worst and at best a poor investment choice. Get very very suspicious if you hear the word “guarantee”.
You Should Be More Conservative As You Approach Retirement
Retirement is not what it used to be. You’ll be living a lot longer than people that retired in the 50s most likely. Fixed income rates have been historically low for more than a decade now. If an advisor is trying to sell you on a fixed income, bonds, fixed annuities, and that sort of thing just because you’re getting older then be suspicious. You’re not going to stop living and working and doing things just because you’ve become financially independent. This rule may work for some people, but far more people are paying too high an opportunity cost by just going along with conventional wisdom.
Make sure you take the time to vet your financial advisor. Check with other clients of the advisor to find out how they serve clients and then ask that advisor great questions. Do they meet with clients regularly? What kind of investments can they help you with? Are they limited in their investment selection? Do they talk about more than just your investments? How do they charge you? How much do they charge? What is their educational background? What continuing education do they pursue? Do they have revenue-sharing agreements? What other conflicts of interest do they have? What does the advisor value most? What kind of clients does the advisor specialize in helping?
I know the world of finance can be confusing and that the financial advisor industry is a muddy spectrum of crappy to great advisors. Use this list and information to make a good choice and move forward on your financial independence journey.