While doing my daily reading one recent morning I came across an article on my news feed by the folks at Rich Dad, Poor Dad. For those who may not be aware that is an organization that grew out of a financial planning book by Robert Kiyosaki. His work does an effective job of pointing out several differences between how the wealthy operate compared to the masses.
In my work I have noticed many of the same traits and took some time to rehash some thoughts on choosing the right people to help you. The regulation of the financial service industry doesn’t seem very effective when it comes to driving people to an advisor that is a good fit. In fact the regulators have licensing rules and procedures that ensure a basic level of competence not much more. The “silos” that exist make it possible to get a terrible advice and a bad investment even though the tool like annuities, insurance, mutual funds etc may be legal and ethical to use but not the best choice for YOU.
Choose wisely and consider the following information.
Step back to decipher fact from opinion
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? Who knows? Be careful what you read and don’t subconsciously agree with everything you read.
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, unless he or she has a reliable crystal ball, 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.
Mainstream = Lame Stream much of the time
Have you ever noticed how most mainstream personal finance “experts” give the same tired advice interview after interview and article after article? If you pay close attention, they almost always claim the path to a comfortable retirement is through diversification, saving more, and living below your means. On the surface the advice seems good but the reality is in order achieve significant growth, you need to do more. Growth is never as easy as those “experts” make it sound. Its ok if you don’t want to do the hard work, but don’t be fooled into believing passively saving and investing solely in Wall Street endorsed mutual funds is going to increase your wealth.
Let’s explore each one a bit more closely:
1. Diversify. They suggest you don’t put all your eggs in one basket, but then really only talk about paper assets (stocks, bonds, and mutual funds). How is that diversification? They should be telling you to invest in commodities real estate so you can benefit from the monthly cash flow or start a business to create your own assets.
2. Save more. You’ve been told to save for a rainy day, but where exactly will this meager savings get you? Do you know how much money you’d have to save up to spend 20-30 comfortable years in retirement? Let’s face it: The interest you earn on a savings account is so low, it’s practically nonexistent — it certainly won’t help grow your nest egg.
3. Live below your means. If you’re fine living in a world where you have to delay gratification and live without things that you want, then go for it. But wouldn’t it be more exciting to find ways to grow your income and expand your means versus cutting your expenses?
Begin by knowing your goals (Know Your Numbers)
Before you even begin looking for money advice, you have to know what information you’re looking for. This depends on the dream and goal you Aspire to — perhaps it’s to achieve financial freedom. It also depends on your plan to get there.
Your plan is simply what you have to do to attain your dream. Your plan does not need to be complicated. Baby steps and continuous progress are the way to go.
You’ll want to add one more piece to your plan: A way to keep score to tell you whether you’re winning or losing. In tennis, the barometer could be the number of times you consistently hit the ball over the net. In your financial plan, the indicator may be the number of consecutive days you learn something new to bring you closer to your dream.
Daily monitoring and comparing your progress is a success factor. What gets measured gets improved. Focus on the goal and move towards it every single day!
Who is the best advisor for me? Ask the important questions!
Now, instead of blindly following terrible personal financial advice, you should be questioning everything. Young children question everything around them. They ask “why” a lot. Learn to be like a toddler and question all financial advice that comes your way versus assuming it’s a fact. Ask the questions:
• Does this make sense for me?
• What are the pros and cons?
• Will this get me to my financial goal?
• Who gets paid when I use this investment? How much?
Every question you ask is the right question if you’re smarter as a result and if it leads you to make better, more informed decisions about you and your money.
Questions to help decipher good money advice from bad
When personal financial advice comes flying your way, how do you know whom to trust? Start with these five basic questions.
1. Does their success translate to what you want to do? It’s easy to assume that if someone is successful, their advice must be worth more. Don’t fall into that trap. Just because they are successful in one aspect of their life does not mean they know anything about other areas. They may have just gotten lucky. Talk, ask questions and get a feel for their competence.
2. Do they practice what they 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 clearly not in alignment with their own brand. It’s important to determine if the expert you are seeking advice from (such as a financial advisor 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 message daily? When it comes to brokers, does your real estate broker invest in real estate? Did your stockbroker purchase the same shares of stock she is recommending you to buy? If a person does not follow his or her own advice, that’s a huge red flag you shouldn’t be following it either.
3. Have you considered 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. It’s not surprising 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?
4. Are they an adviser or a 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)? Don’t be shy about asking how they are getting paid, to determine if they are on a commission or in need of meeting a quota to earn their bonus. Training at Wall Street brokerage houses is heavy on sales techniques and technical aspects are far less common. Do what you can to separate the real advice from the sales pitch.
5. Do they want the transaction or a relationship? If you're talking with a broker or agent whom you've never met before and the conversations are only about this one deal, this one buy, then chances are she's only in it for the short-term commission from that one transaction. An advisor who asking you lots of questions and listening is probably more interested in developing a long-term business relationship with you. That's who you want to work with.
Once you ask all of these questions, you’ll know whether or not you are talking to a good or bad advisor. And if you still aren’t sure about the personal financial advice you’re receiving, trust your gut. As your knowledge and experience grow, you’ll get better at deciphering facts from opinions. By being careful about the advice you take, you’ll be much closer to reaching your financial dreams without wasting your time, money or effort.
December 15, 2021 | David Huff | DWHuff Consulting
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