The 4 Most Important Tips For Finding A Financial Advisor
Two men went to dinner together. They were old friends and wanted to catch up. One of the men was a successful real estate investor. The other friend was a middle manager at a corporation. During the course of dinner, they inevitably got onto the subject of investing.
“I could never do what you do,” said the middle manager to his friend. “It takes too much risk. I’m glad you’re successful, but I could never do that.”
“Sure you could,” said his real-estate-investing friend. “All it takes is a change in mindset and a little help. I’ve spent many years studying money and real estate, and I have a great real estate broker who helps me find and make great deals.”
“I don’t have the time for all that studying,” said his middle manager friend. “I work too much. And the idea of working with a broker gives me the heebie-jeebies. What crooks! Why should I pay them so much money to do practically nothing?”
“A good broker is worth good money,” said the real estate investor. “I like to pay my broker well…if he’s good at what he does. I consider it part of the cost of investing.”
After more back and forth, the friends decided to agree to disagree. When the check came, the men had a friendly argument over who was going to pay. The middle-manager friend won out and took the check.
As he was signing, he said, “What a great server today! I’m going to tip well.”
The real-estate-investor friend looked as his friend wrote out the tip and noticed that he gave a generous tip of 22 percent. They said their goodbyes and each went back to their lives.
The story above illustrates a general truth about good advice: when it comes to assets, the poor and middle-class are cheap, but when it comes to liabilities they often spend too much.
I find it funny that the poor and middle-class insist on tipping well at restaurants—sometimes even for bad service—but complain about paying brokers three-to- seven percent for their services. The poor and middle-class enjoy tipping people in the expense column and stiffing people in the asset column. That is not financially intelligent.
The Value Of Good Information
We live in the Information Age, and information is priceless. A good broker should be able to provide you with information that will make you rich, as well as take the time to educate you. I have several brokers that do that for me. Some taught me great information when I had little or no money, and I am still with them today.
What I pay my brokers is tiny in comparison to the kind of money I make because of their great investment advice and the information they provide me with. I love it when my brokers make a lot of money because that usually means I do too.
The Value Of Saved Time
Good brokers also save me time. They are my eyes and ears in the market. They’re there every day so I don’t have to be. I’d rather be playing golf.
Those who like to do their own investing without professional help must not value their time. Why would I want to save a few bucks when I could use that time to do what I’m good at to make more money or to spend some time with those I love?
It’s important to remember, however, that not all brokers are created equal. Unfortunately, many brokers are only salespeople. They sell, but they don’t own. There is a huge difference between a broker who sells houses and a broker who sells investment properties and invests himself. The same is true for stock, bond, mutual fund, and insurance brokers—those who call themselves financial planners.
When I look for good brokers, I find out how much property or stocks they personally own and what percentage they pay in taxes. That applies to my tax attorney and accountant as well. The answers tell me a lot about their financial intelligence and whether they can really help me—not just sell to me.
Most important, find a broker who has your best interests at heart. Many brokers will spend significant time to educate you, and because of that, they could be one of your most valuable assets. Be fair to them, and most of them will be fair to you. If you don’t want to pay for good help, then why would they give it? You wouldn’t work for free, and neither should they.
How to Find Real Financial Advice
If you post a simple question on social media (for instance: What type of car should I buy?) it’s amazing how many people will come out of the woodwork to share their advice. Some of that advice is based on personal preference, some is based on an advertisement they saw or a friend’s experience, and some is based on their assumption of what you want and how much you can afford. But how much of the advice is based on fact? I’d venture to guess little to none.
The same is true for most any topic, including financial advice. In the media, I often hear statements that make me pause and wonder, “Is this advice based on fact or opinion?” Statements like, “Men are better investors than women,” or “Women don’t take risks when it comes to money.” This can be especially confusing when you first set out on your path to achieving your financial dreams.
If you’ve ever watched a financial TV show, you’ve probably heard the commentator turn to his industry-expert guest and ask something along the lines of, “Do you think the stock market is going to crash? Are we headed toward another financial disaster?” And the guest confidently gives his or her reply — or rather, his or her opinion. It’s an opinion because this guest has no idea what’s going to happen. Nobody can state with 100-percent certainty what the stock market will do. It’s all a bunch of opinions based on a variety of factors and historical trends.
When Financial Investment Advice Comes Flying Your Way, How Do You Know Whom to Trust?
- Choose your advisers wisely. It’s easy to assume that if someone is successful, their advice must be worth more. But just because they are successful in one aspect of their life does not mean they know everything about everything. They could be offering advice based on their experiences, which may have been rare or unusual. They may have just gotten lucky. They may know a lot about X but nothing at all about Y (and Y is what you’re asking about, of course). You’ll want to ask a lot of questions before placing anyone on a pedestal, to ensure he or she is an expert in the specific area you’re asking about.
- Practice what you preach. We’ve all seen doctors and nurses who smoke, heard tales of lawyers who break the law, and have probably noticed a personal trainer at the gym who wasn’t in the best shape — sure, these professionals are only human, however, they are not in alignment with their own brand. It’s important to determine if the expert you are seeking advice from (such as a financial adviser or real estate broker) is taking his or her own advice. In other words, are they investing in what they recommend you invest in? Are they practicing the habits and strategies they are advocating? Are they living their messages daily? If a person does not follow his or her own advice, that’s a huge red flag.
- Consider the source. Have you ever noticed the commercials on a financial television show? The ads typically feature mutual fund companies, stock brokerage firms, and investment banks. Hmmmm, it’s no wonder that the information from these shows favor mutual funds, stocks, bonds, and related financial instruments. If their number-one advertiser is a mutual fund company and their advertising dollars are keeping the media outlet (TV program, newspaper, magazine) afloat, then would they ever speak out against mutual funds? Probably not. Always consider the source before you believe the information presented to you.
- Adviser or salesperson? Always follow the money of the person selling you the investment. Does the person advising you have an agenda (do they benefit financially either directly or indirectly)? Ask how they are getting paid, to determine if they are on a commission. Do what you can to separate the real advice from the sales pitch.
Editor, Rich Dad Poor Dad Daily