Is it okay to blindly follow financial advisors?
When we are new to field of financial planning and management, the first step most of us take is read up on the subject online and take help of experts. In this case, experts could be a distant relative or a friend who is a pro at handling finances and investing. Some people end up going to a financial advisor to learn and seek advise on handling their money matters. These financial advisors or brokers then take responsibility of your finances and invest them in various places depending on your risk tolerance. But, the question here is, is it okay to just blindly leave your finances in the hands of a financial advisor and completely forget about it?
No doubt financial advisors have a good understanding of the financial markets and their knowledge enables them to make prudent decisions, but at the end of the day, they aren’t really offering any advice for free. They too are doing their job to make profit and earn a living. So, in effect, there are both pros and cons to hiring a financial advisor. While the pros will indeed work in your favour, it is important that you are aware about the downsides of blindly following the words of a financial advisor. Let’s explore this thought in detail.
A reality check
According to a recent survey, 61% of Singaporeans consult financial advisors and some of them are even open to robo-guidance. The figure exceeds the overall average of Asian countries that is 56%. This goes to show the overall reliance of Singaporeans on financial advisors. While this may not be a bad thing, blindly following any advice that comes your way is certainly not the way to go. Firstly, you need to understand that most of these financial advisors are brokers.
So, any financial product they recommend to you fetches them some commission. This means that your financial success may not be your financial advisor’s top priority. Their main aim could be to sell as many financial products possible to make sure they earn a profit. The next time you think of your financial advisor to be your knight in shining armor, who would rescue you from your financial ignorance, think again. The advice could either be for your benefit or for theirs.
How much are paying your financial advisor?
A good way to counter this is to do your own research on the financial markets. Discuss with your financial advisor regarding the investment options in hand and play a proactive role in the decision making process of your investments and taxes. You also need to be wary of the amount you will be paying to your financial advisor. If you find yourself paying ¼ th of the profit you make to your advisor, then reevaluate the expense. In some cases, it may not be necessary to have a financial advisor. People with high net worth, several assets, several investments, and with more than two people living under the roof require a professional to manage their money.
Warning signs you are dealing with a bad financial advisor
They talk down to you
No one likes to feel belittled. Quite often, some clients may not be adept with the happenings of the financial world. You cannot hold this against them and talk down to them. The ideal way of approaching any client is by being humble and patiently explaining to them the implications of their financial decisions. So, if you come across a financial advisor who does not have enough patience, say goodbye and invest your time and energy in finding better financial consultants.
They don’t account for your spouse
Some financial advisors fail to account for your spouse while making financial plans. Both female and male advisors are guilty of this behaviour. There are two problems with this approach. Firstly, your spouse is an integral part of your life and also in some cases a dependent member in the family. Hence, any financial plan is incomplete without taking the other spouse into account. Secondly, only considering you over the other spouse means there is a narrowed down approach towards your financial goals.
Communication is major issue
You surely want to work with a professional who is accessible. Imagine calling and mailing your financial advisor multiple times and he never seems to be free to talk to you or even reply to your queries via email. By working with someone like that you don’t want to add to your stress. So, if at any point you feel that the financial advisor you are dealing with is going to give you a hard time with communication, then it’s time to consider another advisor for your portfolio.
Having more than one financial advisor gives you a broader spectrum of choice. It doesn’t limit you with just a point of view but provides you with a wider gamut of possibilities and estimations for financial success. Although ideologists, such as Barry Schwartz, counter the whole idea of having many choices. But, think about it, when it comes to your finances do you really want to blindly rely on just one financial advisor? Do you want to give an external entity so much power to affect your financial growth? Well, that may or may not work out for you. But, what could work in your favour is taking some responsibility for the financial decisions you make, hear out multiple perspectives and possibilities for dealing with your assets, and then make your decision based on the information you have.
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