Five word financial advice

A number of financial advisors provided their top financial advice in only 5 words in a recent article.

The following is my 5 word financial advice:

Use an independent financial advisor

I think this is the foundation for almost any other financial advice, as having a successful long-term relationship with an excellent financial advisor may be the most critical step towards a financially secure and confident future, for almost anyone. Just like you should have an excellent internist and dentist, you should have an excellent financial advisor.

What are some key components of an excellent financial advisor?

An excellent financial advisor should be….

Independent….This means the advisor should be completely unbiased in making investment recommendations for you. The advisor should not be compensated or employed by the mutual funds of the company or investments which are recommended. For example, if your advisor works for Mutual Fund Company ABC and they primarily recommend products of Fund Company ABC, you are not getting independent advice and may not be getting the best investments available. This type of advisor, or the Fund Company’s or bank’s advisory service, may not always be acting only in your best financial interest.

Able to effectively communicate with you and know you personally. Your advisor should understand you and your personal goals and concerns. You should not ever feel like a number. You should be confident at the beginning of the relationship that your advisor will be working with you for many years in the future. You should be able to clearly understand your advisor. When he or she explains something, you should “get it.” You should feel comfortable with your advisor and his team and that they listen to you. You should get the sense that they truly care about you, your family and your best interest. They should be responsive to your calls, questions and requests.

A true financial advisor, not just a money manager. A money manager handles your investments. They may pick stocks, bonds and mutual funds for you, but that is about all. A true financial advisor will make investment recommendations, but that should really be the beginning of the relationship and services which they provide to you. An excellent financial advisor should be able to help you with almost all of the financial issues, questions and concerns you have in your life. You should feel comfortable asking, discussing and getting answers on diverse matters, such as how much can you withdraw annually in retirement, how much can you afford to help your children or grandchildren, social security, college savings, estate planning and charitable giving. If you want to move, your advisor should be ready and willing to discuss the various aspects of this decision with you. You should be comfortable and want to discuss any financial matter that is important to you or family with your financial advisor. If the advisor or you don’t feel these are appropriate discussions, you are not in the right advisor relationship.

Referred to you. This may not be essential, but being referred to a financial advisor by a trusted friend, relative or other person gives you the confidence to make this critical and important decision. We are fortunate (and greatly appreciative) that nearly all of our new clients are referred to us by current clients or others who know us professionally, such as attorneys or other CPAs. The advisor should be very familiar or have the expertise to deal with your specific issues. For example, we have extensive experience working with people who have gone through life transitions, such as the loss of a spouse or divorce. If a prospect came to us with a disabled child, which requires a specific type of trust and planning needs, we would recommend them to an advisor with expertise in those matters.

A fiduciary. This means that your advisor and the firm have a legal responsibility and obligation to always act in YOUR financial best interest, not in the best interest of the firm. This may surprise you, but many of the major brokerage firms, banks and insurance companies do not meet this standard. If you are considering switching advisors or questioning your current firm, ask if they meet the fiduciary standard. The answer should be a clear YES. If they don’t answer with a clear yes, and begin to give you a long explanation, they are likely not fiduciaries and that is NOT in your best interest. We feel you should only work with an advisor that meets the fiduciary standard for all of your investments.

Fee-only. An excellent financial advisor should not charge commissions, sales charges or loads for any investments which are recommended to you. You should be able to clearly understand how the advisor and their firm are paid. The explanation should be simple and direct. Do they charge you an advisory fee for their services, based on the assets which are being managed? That’s fine. We do. If they recommend mutual funds, are they being compensated in any way by the mutual fund company? For us, the answer is no. If the answer from another firm is yes, they are not fee-only. They may not be acting in your best interest. Many brokers do not clearly disclose mutual fund compensation, so you really need to ask directly about this.

Using a rational and understandable investment approach. We have utilized the same, consistent investment philosophy since our firm was founded in 2003 with solid performance results. We can describe it to you in one meeting and you will understand it. If you ask another firm about their investment approach, can they describe it to you? Is it based on predictions and guesses about stocks? How can you know they will be able to accurately predict the future? How and why do they decide to buy and sell stocks or mutual funds? If you are not confident in their answers to these questions, that is not a good sign. Also, an investment approach should ideally be very low cost and tax efficient, with steps to minimize your taxes.

Choosing an investment advisor is one of the most important decisions anyone can make.

For our current clients, we truly appreciate your trust in us and we take our responsibility to you very seriously.

If you are not a client, we hope this is helpful to you, as you consider your financial future. If you would like to contact us to begin a relationship with our firm, we would be pleased to talk to you.

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