4 Facts Your Financial Adviser Wants You to Know

by Emily Guy Birken · 3 comments

You expect your financial adviser to know things you don’t, since you don’t speak NASDAQ and never quite figured out what a subprime mortgage backed security was. After all, that’s why you’re consulting an expert.

But there are some things about financial management that everyone should know — and it bothers the reputable financial advisers when their clients don’t know them.

Here are four facts you need to know about finances before hiring a financial adviser.

1. Not all Financial Advisers are Created Equal

Unfortunately, there is no regulatory body that oversees people who call themselves financial planners, which means that someone offering financial advice could be a financial planner, an insurance agent, an investment adviser, or a tax attorney.

In general, most clients will do best with a fee-only certified financial planner (CFP). The certification ensures a standard level of education and experience as well as the CFP board’s standard of ethics. Fee-only advisers are also more likely to be unbiased, since they do not earn a commission from your decisions.

2. Know the Fees You’re Paying

According to CFP Jeff Rose who blogs at GoodFinancialCents.com, “many people working with financial advisers have no idea how much they are really paying in fees.” For instance, a 2% annual fee on a mutual fund will eat away nearly two-thirds of your investment over a fifty-year time frame.

Add in the fact that commission-based advisers may not make it clear that their compensation take a bite out of their clients’ returns, and it should be obvious that understanding fees is paramount.

Rose recommends asking for straight information about fees and compensation: “When you ask point blank about compensation, see what response you get. If they can’t clearly articulate how they are paid and what you will pay in annual fees, that’s a major red flag.”

3. Profits are Not the Key to Financial Success

This tip comes from Joe Saul-Sehy, a former financial adviser with 16 years of experience who now blogs at StackingBenjamins.com. According to Saul-Sehy, many otherwise savvy clients would fixate on what whatever hot new thing was making headlines.

“These clients needed to remember that learning to set up systems to save, covering their downside, and widening the difference between what they earn and what they spend was the key to financial success. It amazed me how many of my smart clients missed tons of easy opportunities by focusing on investment returns rather than on the financial decisions they could control.”

Ultimately, you need to put your energy where you can actually make a difference — in your own spending and saving habits.

4. Lifestyles Expenses Can Costly

Financial planner Dominique Brown, CEO of S&D Capital Holdings and author of the blog YourFinancesSimplified.com, gets frustrated seeing clients who are unaware of how much they spend on their lifestyle.

“Those decisions can be very expensive, particularly if your lifestyle choices keep you from investing early and often. You don’t need name brands to live now, but you will need money in the future.”

This is why it’s so important to keep track of your expenses so you can have a real understanding of how much your lifestyles costs. Just the act of tracking your money can be eye-opening and spur you to forgo the latest “must-have.”

The Bottom Line

Finances can be intimidating, and it can be tempting to leave decisions to financial experts. But you need to familiarize yourself with the ins-and-outs of how money works, especially when someone else is managing it, so you can protect yourself.

No one will take care of your money like you will. So be sure you understand these important tips!

Have you worked with a financial adviser before? What are some other tips you’ve learned from them?

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  • Dewald Swart says:

    Awesome advice we can all use. I heard a wise friend saying that you do not get rich by the money you earn but by the money you save.

  • Jordan says:

    Definitely some great points here! It’s so important for people to understand this when getting a financial adviser. Especially about how profits don’t automatically equal success! Thanks so much for sharing!

  • Dan Zajac says:

    Good points! I wish all clients could read this

    This is one of my personal favorites…. Buying Vanguard, Fidelity, and/or “enter your favorite company here”, doesn’t mean your good. In fact, it doesn’t really mean anything about your actual investments.

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