There’s one common mistake that people make when using a financial advisor. If you know what it is ahead of time, you’ll know:
- what to look out for when you’re talking to advisors;
- how to get the maximum benefit when working with an advisor; and
- whether or not you found the right one.
Or, maybe you’re evaluating whether you need an advisor or not. This post will give you a clear picture on the value that they can provide and if the cost is going to be worth it to you.
Finally, if you already know that you’re looking for an advisor, this will help you find your ideal fit.
A First Meeting Reveals The #1 Mistake
Recently I was in a first meeting with a 60-year-old couple. They had seen a few of our videos and were thinking about retirement so they reached out. Most of the time on this first call alone, people get more clarity and they find out the next steps that they need to take to improve their financial life. I thought it was a great discussion. At end of the call, I asked how they were feeling? And they were quite honest and told me they were kind of embarrassed that they hadn’t been paying close attention to their financial life or plan for retirement. They had over a million dollars saved, but the husband felt like he was making wrong decisions when it came to a retirement. And there were a few decisions where he let emotions take over and it negatively impacted the plan.
As a side note, be aware that every financial decision is made up multiple parts. One is the financial side and the other is the emotional. As you get closer to retirement, that emotional part of money decisions, gets stronger and stronger. This is something to be aware of as you get closer to your retirement date.
Now, back to our couple: there was some embarrassment because they didn’t think they had made good decisions. And also some embarrassment because they felt like they should know more about the financial world, whether it was the main risks that they need to plan for, or the different types of investments they should have, or the right withdrawal strategy. They just didn’t understand it all. They were embarrassed because they felt like they didn’t know as much about their money or about their own retirement as they should. And they were feeling a little bit of intimidation too. This is common.
Advisors know more about the financial world than most of their clients. That make sense. But clients often hand over control to those advisors to implement their strategies and plans. Then the clients are trusting that it’s working out without ever really understanding the plan. A lot of people are okay with this, but I wouldn’t recommend doing it. I recommend finding an advisor who is able to clearly communicate and simplify the plan so that you can actually understand. When you understand the investments and understand the plan, that gives you more confidence that you’re doing the right things and not just taking a blind-trust approach.
You’re the CEO. You don’t have to be the CFO too.
When you’re starting a relationship with a new advisor, or even if you already have one, you can keep this in mind. Remember that this is your money. You’ve earned it. And now you’re the steward of it; you’re the manager of it. This doesn’t mean that you have to go to school and study the financial world all day. You can hire counsel to be the guide, but just remember to be confident because you’re the CEO. And you’re just going to try to find a CFO, a chief financial officer. You’re still the leader in your life. In a business, the CEO does trust the CFO with the financial side of things. But it’s up to the CFO to succinctly communicate these most important things to the CEO.
If you’re currently in the process of interviewing advisors, go to the meeting feeling confident, remembering it’s your money and this is how you’re managing it. You don’t know everything about the financial world. Frankly, you don’t want to know; you probably don’t care to study economics or markets all day and make decisions by yourself. It’s probably not fun for you. You have certain skills and abilities that you’re good at and finance doesn’t have to be one of them. Especially if you’re close to retirement and you’re starting to think about spending your time on the things you enjoy and less on the things you don’t enjoy as much.
What To Say To Your New Advisor
To help lessen that feeling of embarrassment about not knowing everything about money, here’s what to say to a new advisor to make sure that you’re on the same page:
I’m good at what I do, but I need someone to help me navigate this financial part of my life. I’d like you to anticipate and plan for some of the risks that I might face and create a plan that I can understand.
By sharing this up front, the advisor knows where you’re coming from. And if you still feel embarrassment or intimidation when you’re talking with an advisor, maybe it’s not a good fit. You need to feel comfortable and calm and good about this relationship.
Another Common Mistake
I received an email recently from a couple who were not clients of ours. They sent me a big financial plan from an another advisor who they had just met with and were seeking a second opinion. They connected with this advisor mainly because he was at a big firm––the kind of firm on TV commercials during sports games. So they sent me the plan and they wanted my opinion about if it would be good for their situation. I looked through it, and I noticed that the majority of the recommendations were to buy new insurance products and annuities. With these kind of products, the advisor usually gets paid a pretty big commission.
Now, if this was discussed with the clients and it was understood, maybe this could be the right path for them. But when I told them they were actually surprised. They were moving forward with the plan because they were feeling a little intimidated. They were just trusting that this first advisor was giving them good counsel. But when I asked if they knew how the advisor got paid, they didn’t know. And that’s another big mistake: not knowing how your financial advisor gets paid.
At Streamline, we work on a fee-only basis, not commissions, because we believe this is in the best interest of our clients. We don’t want to be a travel agent who creates and sells a vacation plan. We actually prefer to be the tour guide who goes on the vacation with the clients.
When you think about it, the financial industry is kind of like a foreign country where you don’t speak the language. But a tour guide who does speak that language can be a huge help. What if there’s a detour or the bus gets a flat? A local guide can more easily take care of the unexpected things that pop up while you’re on vacation, because they’re familiar with the area. That’s kind of how we see our jobs too. And if you think you’d benefit from talking with a financial guide, please reach out to me.