Who Is Giving You Financial Planning Advice?
Handling finances can be difficult for many people because financial planning is not taught in school, and it is rarely taught in the home. While some people may be very savvy at plotting out their financial course, not everyone is talented to do so, or is willing to participate in financial education learning activities to help them to do so.
For this reason, managing finances is a real struggle for many people and they feel more comfortable visiting a qualified financial advisor to give them financial planning advice.
Professional advice from a financial advisor can make a huge difference to your future financial situation, but it doesn’t always pan out well. So when choosing a financial advisor you do need to be careful as some may care about nothing other than making money from you.
As a result, they may suggest options that will favor them, as far as how much commission they will make, instead of how much money you, the client, will make.
You don’t want an advisor that thinks solely about the money in their own pocket, you want an adviser that is going to work for you and your best interests. One that will financially educate you and help you to understand finances and why one financial strategy may work for your situation over another.
The mistake many people make is trusting everything a financial advisor tells them instead of acquiring financial literacy skills to understand financial matters themselves. Keep in mind that even if you have a decent financial advisor, it is still important that you are financially educated to understand how money works and how your money will be invested.
For instance, suppose you are considering investing in the stock market, not even a savvy financial planner can tell you with 100% certainty which stocks are worth buying. The stock market, like many investments, has its risks and can be very unpredictable.
When you study the stock market you can learn some trends and can make a better decision based on those trends, but investing at the mercy of someone else’s hunch is extremely risky and the money that you believe will be available for your retirement can be snuffled out if you have a hands-off approach.
Most financial planners will get paid by commissions, so whenever they sell you a product they will earn a commission. This isn’t necessarily a bad thing as many advisors will point you in the right direction. But there are some that are so focused on how much commission they want to make, that they take very little to do a proper financial needs analysis of their clients to ascertain what is BEST for their situation.
They use the approach of “One Size Fits All” when dealing with clients especially if there’s a product that pays higher commission. They will always try to push that product on clients to capture higher commissions.
For this reason, you should never jump in and buy the first thing an advisor suggests, but listen to their recommendations, get other opinions and then make the best decision for your own situation. Moreover, you should never trust someone giving financial advice unless they themselves live by that same advice.
So one question you want to ask your advisor is if they already acted on their own advice and are reaping the rewards from doing so. If your financial advisor is not successful at making money themselves with the advice they are giving you, then why would you trust them with your money?
Although it may be difficult to know if an advisor is making money or not from his investments, without getting too personal, it is best to view a financial planner as someone to tell you what your options are, rather than someone just to tell you what to do with your money. If you aren’t sure about something then ask them questions, ask as many questions as you need to, after all it is your financial future at stake.
A financial planner should give you all the pros and cons of each investment strategy so that you can then go and make an informed decision as to what path to take. If the advisor seems like all they are interested in is making a sale, then I would walk away and find another one that is interested in helping you to make the proper choice.
When you are making decisions about money and about your future, it is important to do your homework and never just take someone’s word at face value. Don’t just trust anyone; take time to interview financial planners until you find one that you feel comfortable working with. You want one that takes the time to understand your financial goals and your needs and will help you accordingly.
There’s no one more interested in your financial future than you are — not the government, not your employer and certainly not a financial advisor. So it is your responsibility to learn the simple rules of how money and investments work.
Understanding how money works and the different types of investment strategies will help you to become better at financial planning, and thus put you in a better position to take care of you and your family’s financial future.