I recently answered a question on Quora, related to using a Financial Advisor and if their services are worth it. I thought this question would make a really great post for this week.
You should only use a financial professional for things you CANNOT do yourself
How to utilize a financial advisor: What you should NOT use them for!
- You should NOT use them to tell you what you SHOULD do
You know better than anyone else what you want life to be like if you live a long time, die suddenly, have an emergency, get sick and need to go into a nursing home, or pass away at a ripe age and want to pass on an inheritance.
- Don’t take recommendations but rather demand data, and clarity
Use the process in the last chapter of my short book, Renovating Retirement to build your own financial blueprints before you set up an appointment with an advisor. If you do this before you go to a professional, you should ask them “can you do this?”.
- You should NOT use them to let them sell you their products if they only represent one company’s products or one group of products
If the company name on their business card is one you recognize as a huge financial organization or a huge insurance company running ads on TV, the chances are they are not independent and will not work for you. Their job is to sell the company product to consumers no matter how much better they could have done elsewhere. In other words….they hurt people for a living.
- You should NOT use them to gamble your money in the stock market
If they can’t show you their previous annual returns spanning back to at least 2008, you shouldn’t be working with them. Most investment advisors put people’s money into stocks, bonds, and mutual funds, and don’t beat the stock market. So NO they are not worth it. With your IN-Crease money, just buy the S&P 500 Index if you have to have risk in your life. However, if they can show you a track record of 13 years, in which they didn’t lose money in 2008 and are beating the S&P 500, then YES they are worth it. Don’t let someone who can’t show past return (of their own, not what the market does) practice on your account.
- You should NOT be trusting them, not even me!
I don’t ask anyone to trust me because trust is dangerous and stupid in a mathematical industry. You need data not trust. You need clarity of sight, not trust. You need a windshield, not someone in the passenger seat shouting instructions while you drive blindfolded. The Advisors job (the honest ones) is to make things clear for you, that make your decisions easy. They should be delivering accurate data which allows you to pick from the top three best options for your IN-Case, IN-Come and IN-Crease strategies. Unfortunately, most advisors see their job as to make recommendations of what you SHOULD do and then steer you into what they want to sell you.
How to utilize a financial advisor: For the things you can’t do yourself!
- Shopping for you
You cannot compare annuities and life insurance as a consumer. Computers need to do it these days. The last annuity comparison I ran had 218 different possible combinations of products and income rides. No human can efficiently compare that many and sort them by best to worse. Computers do it in seconds but you don’t have access to that software. Once you know what you want in your IN-Come Accounts, you have to find an advisor with access to this software. I have it if you need help.
- Buying financial products for you
You can’t get around someone making commission on you when you buy life insurance (tax-free growth) or annuities (guaranteed income) so you have to pick someone who is the best in the country when it’s time to buy what you decide you want in your life.
- If you MUST have securities in your life (stocks, bonds, mutual funds, risk, losses with possible huge gains) for emotional reasons, then you need to hire an investment advisor
This is easier said than done. I’m in the business full time and it took me 9 years to find someone who would show their past performance and who did better than the S&P 500. Everyone else just talks a good game and charges you for risk with a side of fees while they lose your money. Life Insurance, built properly and built for growth, has beat even my money manager and the stock market for over 30 years. So securities are an unnecessary part of retirement planning but people find the monthly statement, and the ups and downs, exciting.