Financial Tip of the Day #5 - Don't be the Sucker!

My girlfriend was telling me a story the other day about an individual who came to their work. My girlfriend is a teacher in a major city school district. Every year there are individuals from financial institutions and banks who come in and pitch their products (generally retirement packages) to these teachers. Unbeknownst to them, they're being persuaded to buy these packages that give commissions to the individuals.

In the particular case of my friend, the individual who was pitching retirement products began telling the teachers the importance of putting their money away early in their life so that it can grow and provide them benefit in retirement. Due to the fact that my girlfriend is probably sick of hearing my financial advice, and the fact that she speaks her mind, she spoke up and said "do you have a lot of hidden fees." The individual laughed, and dodged the question stating "all of our fees are listed in our documents."

With this being said, not everyone out there is just trying to sell you specific products. Some of them truly have your fiduciary interest in mind. It is important however to find those people that do care about your best interests. Tony Robbins' book "Untouchable" touches (no pun intended) on the current state of the financial advisory industry. Through his book he states that studies and research has shown that only 46% of retirement advisors have a retirement plan of their own. In addition, out of the "308,987 financial advisors in the U.S., only 31,000 - approximately 10% - are registered investment advisors." - Fidelity Institutional Asset Management and Unshakeable by Tony Robbins. 

These statistics get even worse when you factor in investment advisors who are dually registered. Investment advisors can register as a fiduciary (required to act in your best interest), and as a broker (earning commissions on products that they sell). There's a major grey area as well, where they are able to ditch the fiduciary obligation when they act in the manner of a broker. So, at the end of the day they don't really need to act in your best interest.

In the end, Unshakeable quoted the numbers of roughly 5,000 out of the 308,987 financial advisors in the world who have a true financial obligation to act in your best interest. The rest certainly can help you with your finances, but have the potential to take a slight cut on the side.

So how can you make sure you know who your advisor is looking out for you? Here's a few simple ways:

Check for certifications!

1. As someone who has taken the cpa exams, I can personally attest to how much of a pain in the ass they are. That being said, you are definitely tested on a lot of material, and need to know your stuff.
2. Remember that this doesn't guarantee that they're going to be a great advisor and perform well.

Look for someone with experience dealing with similar issues to your issues

1. Let's go back to the 46% of retirement advisors who don't have a retirement plan of their own statistic. If you were looking for a retirement advisor, would you work with them? NO! Look into the history of services that they've provided, and if you can, some testimonials from previous clients.

Find someone you like

1. I don't mean you need to become best friends with this person, but someone who you can create a personal connection.
2. You're going to be trusting this person with your money. If you don't trust them before giving them your money, then definitely don't give them your money!

Lastly, check the groups that they're involved with and their disclosures

1. If they mention FINRA (Financial Industry Regulation Authority) or SIPC (Securities Investor Protection Corporation), they can act as a broker and earn commissions off of the products they sell you.

At the end of the day, financial advisors are great. In fact, I personally would love to be one. If you can find one though that is required by the law to act in your best interests, that's even better. The important thing is that you trust your advisor and that you feel comfortable investing your money with them. Hopefully some of these tricks can help you to find one that suits your needs.

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