We have financial advisors in this world for a reason. They’re there to help us navigate our finicky, fiddly finances. To demystify this complex world of money.
Let’s face it – it’s pretty darn confusing. Especially if none of your parents ever talked about this stuff. It’s pretty shocking that only 46% of parents talk to their kids about money. Yikes.
Well lucky for us – financial advisors seem to actually exist. They don’t have a magic money wand but they definitely help you conjure up the right spells to get the good stuff. Think of them as your money trainer/coach/. The person who will help you get your finances back on track. So that you can conquer anything.
The really interesting thing is that 1 in 3 Gen Zers are looking for a financial advisor but we have to choose them carefully. Very carefully. The right advisor can give you confidence, optimism and – more money.
By growing what you already have and making sure you’re invested in the right places. But choose the wrong one and not only will you most likely lose money, but your confidence will probably tank with it.
Psst: 80% of us admit to getting financial advice from this 1 place, here’s how to make sure it works for you not against you!
And you’ll stop believing in investing. And trust me, that’s the worst of all. Psst: Read here how to put your confidence back in your finances.
Look out for this one thing when choosing an FA
Your financial advisor needs to work with you. Not just for you. The last thing you want is for them to take over your entire portfolio and manage it on their own. Leaving you stuck with what’s going on.
Unable to decipher those complex (and stupidly lengthy) financial statements that show up every now and then.
The other night, my friend asked me to explain what the heck she owns in her investment account and it turns out she was investing in something that was way too safe for her age and stage.
But she simply had no idea what it was talking about. Having an advisor should break this stuff down for you. While keeping you in control.
It needs to be a partnership. Your advisor must get to know you, your hopes, your dreams and how that fits in with your risk profile. That’s the sign that you’ve chosen a money superstar.
But too many financial advisors don’t really bother doing that. And if they do, they’re often of taking on too much risk. Forgetting that they’re working for you and not the other way round! They’re worried about losing you money. But you know what they say, no risk, no reward. Or better still, more risk = more reward.
My dad had this exact issue with his financial planner. She was very cautious and wouldn’t venture into riskier areas – the kind my back-then-early-40-something dad could definitely stomach.
My dad handed over his portfolio when his dad passed as he didn’t have the energy for it. I can safely say he now manages his stuff on his own and he’s free to take on whatever risk he wants. He also got his hobby back. And he felt a gazillion times better.
The trouble is, it’s often hard to stop poor advisors from the outset. It’s only when you’ve been investing with them for 5, 10 years (or even more) that you realise, oops. Our money isn’t working for us at all.
And since there’s a massive info gap (an asymmetry that gets exploited) with them knowing more than us, we often don’t realise till it’s too late.
FAs make us think only they can do what they do
A family friend of mine has been using a certain financial advisor for over 20 years now. Well, 20 years actually since they finally got rid of them. They told me their portfolio has barely budged in the past 15 years. This family friend of mine was (without their asking!) taking on too little risk.
Year after year, their FA collected their chunky fees and did diddly squat. Every year, this couple received annual statements which were pages and pages of jargon. Great way to keep clients with you is to overload them with confusing words and make them think that only they can do what they can do.
Now it’s too late since they need to take their foot off what little gas they had since they’re gearing toward retirement. But they didn’t understand their financial statements that cropped up in the post so they just rolled with it.
So, they cashed in their chips and put it into real estate. Since they didn’t understand how the fee structure worked (let alone how much they were paying per yr which was ~1.5%!), they didn’t question a) what was inside their portfolio and b) its performance. They basically missed out on the best bull run. Painful lesson. Psst: follow these 3 principles to never have regrets with money ever again.
The more in control you feel, the better
The #1 thing I would say is not to hire advisors that allow you to give up your throne. You know the kind. The ones who take all your financial decisions away from you, magically put it together then in 3-6 months’ time you’re wondering how did we do?
And when you no longer have the advisor you’re unable to make these decisions on your own. Having an FA doesn’t need to be a lifelong thing! You can have one till you’re ready to do it on your own. But that’ll only work if you’re in it together. If you’re part of it. And if you actually understand it.
Hire someone who will make you smarter. Who will teach you the processes and things you need to know to show you how to get from a to b quicker than without them!
There are so many clues to see if they’re bad at what they do. No surprise – if they have Jim Cramer on TV aka yelling “sell, sell, sell” you wanna run away!
Advisors are meant to cool you off, not spur you on! They’re meant to be the calm in the sea of noise. They create the temperature. Make sure it’s a happy medium. If you visit your advisor and they’re reading the newspaper or a book – congrats, that’s a green flag.
Nowadays though, since zoom is basically our remote office, you might be meeting online. In which case, you won’t be able to spot these nuances. But there are other things you can look out for.
If they don’t open up with a process, how it is they’ll grow your money, what sort of things you can expect and so on and instead leapfrog to some magic investment that will solve all your problems – run a mile!
Process = advisor in your corner versus product = salesperson. No one wants, or needs, another financial salesperson.
I work in the asset management team of a UK private bank and a lot of the grads who I became friends with are training to become private bankers/wealth managers: aka financial advisers.
The whole ethos of where I work is not greeting the client with a fat pitchbook, detailing how they’ll get you the returns you as a client want but rather they ask stuff about their hopes, aspirations, dreams and so on.
Money is how we get them to where they need to be. But too many focus on the other stuff. Fees, performance, fancy products and so on. When in reality, all the client wants is to be reassured that you’ll make their dreams come true.
That’s it. Simple huh?
So, if you feel like the time has come to hire your own FA, do A LOT of research. See what the company is like, talk to people and more importantly, find one who you feel comfortable with.
It’s a relationship like any other and it has to go both ways.
So take your time!
Disclaimer: This blog is not investment or financial advice. It is my opinion only. This blog is not a personal recommendation to buy/sell any security, or to adopt any such investment strategy. Always do your own research before you commit to any investment.