A well-trained financial advisor is a true asset to people looking to build wealth. However, according to industry experts like Dan Schatt, there are things your financial advisor won’t tell you.
The world of finance is complex and confusing to most people, even when they’re looking for help navigating it. To make matters worse, many people looking for financial advice are sometimes at a vulnerable point in their lives (e.g., recently divorced or laid off), making them easy targets for someone who wants to take advantage of them (e.g., money managers, brokers, advisors).
That’s why you need to be armed with information before meeting with someone who is looking after your financial future. An advisor who serves their client well will give advice based on both expert knowledge and their client’s personal situation; they’ll also explain all of the fees, costs, and incentives associated with the suggestions they’re making.
But what are some things that your financial advisor won’t necessarily tell you? For starters, they might not mention all of the compensation they receive for the services they provide. For example, a fee-only advisor will charge an hourly fee or a flat rate for their work; a fee-based advisor may charge a percentage of assets under management, and commission-based advisors make money when you buy or sell financial products. Equally important is to know if your advisor can work independently or whether he or she works for a larger company where the profit motive might lead them to recommend one service over another (e.g., proprietary products).
Next, your advisor may address your concerns about the financial markets and the economy—but he or she probably won’t do so in such a way that will draw attention to their own money management skills (e.g., “I’m bullish on oil”). That’s because if things go wrong with their stock picks, you’ll stop seeing them as a good financial advisor. Finally, your advisor may not mention that you’d be better off going it alone and avoiding the fees associated with his or her services.
Rather than worrying about what your financial advisor isn’t telling you, find one who’s a good fit for you and whose advice is based on facts, expert knowledge, and personal experience. That way, the only thing you’ll have to worry about is making your money work for you.
Here are some things you should look for in a financial adviser:
1) Expertise: Ask for their credentials, licenses, and years of experience. Make sure they’re qualified to address your concerns.
2) Credibility: Find out whether the advice you get is objective or biased by commissions or other factors. It’s important to know how your adviser gets paid so you can assess whether his recommendations are in your best interest. Ask your adviser if they’re able to act in your best interests or if there are any other times when their incentives may conflict with what’s best for you.
3) Professionalism: Conduct a background check by checking at least three references and asking about complaints—if you can’t get answers from the firm, move on.
