7 Reasons You Should Be Careful When Speaking To a Financial Planner

Financial planners can be a great asset to you and your future, but as with all good things they should be considered with caution.

Ever heard the saying “if it sounds too good to be true it probably is?” Or the saying “you get what you paid for?” Well I want you to keep these sayings in mind when you are speaking with your financial advisor.

The idea of this article is not to discredit financial advisors or planners, many of them are excellent at their job. The goal of this article is to make you aware that not everything they say will always be the best option for you and to get you to take responsibility for your own finances (even if someone else is managing it for you).

So Why Should You Be Careful When Speaking To a Financial Planner?

1. They are paid to sell you products

Believe it or not but the majority of financial planners are actually paid a commission on the products that they sell to you. That may be shares, it may be mutual fund or it may be some other investment strategy.

If you were paid $1,000 commission for selling shares in Mutual Fund A or $100 for selling shares in Mutual Fund B which mutual fund are you more likely to recommend to your client? For me it is an easy choice.

Although commissions may not be this extreme in the industry (I don’t know how much they get paid) I like to remain aware that my financial planner may have an ulterior motive, especially if they are providing their service for free.

This doesn’t mean that the service they are recommending isn’t right for you, it just means you should think about it before making the investment decision.

2. They may not be living off their investments themselves

Anthony Robbins (famous self-help author) talks about ‘modelling’, and no it has nothing to do with the cat walk. Modelling is about finding someone who is living the life you want to live and modelling what they do.

Is your financial advisor living the life that you want to live? Do they make the bulk of their income from their investments or from their job?

If they make the bulk of their money from their job then they are likely in the same boat as you. Where possible always try to seek out people who are further ahead in life than you are and learn from them. It is one of the quickest ways to grow.

3. They may not invest their own money the way they advise you to

Does your financial planner advise a strategy of diversified stock portfolios but actually invest all of his or her money into cash or the property market?

For me this would be a sign that they may not be as specialised as you want them to be.

If I was to hire a new financial planner I would hire someone who specialised ONLY in property. Because that is where I want to build my wealth. The more specialised they are the better advice they often give.

4. They may not have the same goals as you

If your investment goals vary greatly from that of your advisor you may find it difficult to see eye to eye. If they want to grow a huge equity base using negative gearing, but you want to build cash flow to fund your lifestyle then you have very different goals.

Like it or not, their goals will always form a part of their words and have the potential to lead you astray. Always be careful about this.

5. They may not understand your end goals

What if your financial planner doesn’t actually understand your end goals? Maybe they don’t understand the fact that you just want to earn enough money so you can live as an aid worker in Cambodia. In their mind everyone wants to be uber-rich and they can’t understand why you don’t want to earn 6 figures per year in your job and be mortgaged to the hilt for potential capital gains down the road.

6. Their investment passion may not align with yours

They may have the same goals as you but what if their investment passion doesn’t align with yours?

My good friend Tim is a great investor, he loves investing in shares and does a very good job with it. However, I am not passionate about shares at all.

We both have the same goals, financial freedom, but we approach them in different ways. If I asked Tim for advice on achieving financial freedom at some point he will talk about shares, which I have no interest in. The same may occur with your financial advisor.

7. At the end of the day it is your money, not theirs

At the end of the day if they invest your money and lose it all they feel bad for you, but you are the one who just lost thousands of dollars. You will always have more responsibility towards your own money than someone else’s.

This is why, even if you are taking advice from a financial planner, you should always keep the mindset that it is your money and you need to be responsible for your own money.

There are good financial planners and bad ones, and sometimes it can be hard to spot the difference. But I am a firm believer in always being cautious and that is why I felt compelled to highlight these 7 reasons to you.

Whether you agree with them or not I am sure that from now on you will use caution when taking financial advice from anyone.