Getting Objective Financial Advice in these Trying Times
Making good financial decisions is more important now than ever with the meltdown of the stock market, low interest rates at banks and a slowdown in the economy. Good advice is the basis to good decisions.
The options for finding financial advice are endless. Magazines, books, neighbors or friends, TV and the internet are filled with information on the subject. Then of course all those folks looking to sell you a product or advice. The question that retiree’s want answered is “Where do I go for, competent financial advice for my situation that is objective?
Advice should be based on sound financial principles and be from someone who has education and experience in the field. Those that have earned the right to use the “Certified Financial Planner®” or “Certified Financial Analyst®” designations have the education and passed rigorous testing demonstrating their mastery of the subject. Other designations have less rigorous testing or ethics. Beware of designations designed for marketing such as “Certified Senior Advisor”.
Specific to your situation
To be effective, advice should be tailored to your unique circumstances. The magazines, books, TV and Internet are often entertaining and good background information but the advice given is generic in nature and is not specific to your situation. It is easy to come to the wrong conclusion and perhaps make the wrong decision. Friends and family who offer advice always do so with the best intent but it may not be based on sound financial principles.
To start, let’s look at the kind of information you prefer.
· If you’re going to buy a car, are you more likely to trust the findings of Consumer Reports Magazine (who accepts no advertising) or the sales brochure in a car dealership?
· Would you be more likely to trust the results of a double-blind study performed by a nonprofit hospital on drug effectivity or the advertisement from a pharmaceutical company trying to get you to use their drug?
· For those that enjoy wine, would you be more likely to believe the findings from the Wine Spectator or the recommendation from the waiter recommending the more expensive bottle of wine on the menu?
If you picked the first choice in the 3 examples above, you clearly prefer objective advice.
“Fee only” advisors is the best place to get objective advice according to writers in numerous publications including; Money Magazine, Kiplinger Personal Finance, CNN Money, MorningStar, MSNBC, Newsweek, and AARP. With this methodology, the client pays the Fee-Only advisor directly for the time in analyzing, researching and making recommendations specific to that client. There is no sale of product, no commissions and no conflict of interest. Fee only advisers are Registered Investment Advisors and have a fiduciary responsibility of what is always in the client’s best interest.
Unfortunately, most financial advisors in the United States are not objective advisors but rather salesmen. Regardless of the location (a bank, Credit Union, or brokerage firm) any time the advisor gets a commission from selling you a product, there is the potential of conflict of interest between what is best for the client and what is best for the salesperson and the firm.
The reason you cannot get objective advise from a salesperson is that they have the duty of loyalty to their company, not to you the client. They are not obligated to disclose conflicts of interest, better products offered elsewhere or their sources of income.
Michael Chamberlain CFP®
CA Registered Investment Advisor
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This article is for informational purposes and should not be taken as legal, tax or investment advice.