Too many people have entrusted their financial advisors with making practically all of their investing decisions for far too long. This is a poor choice. No one will manage your money as well as you possibly might. I believe that anything you can do to improve your life and the lives of your dependents is acceptable. Consequently, part of this overarching goal includes developing financial literacy and decreasing any excessive reliance on financial advisors.
Financial literacy not only gives you control over your money and gives you the example you need to lead by, but it also empowers you and people around you. I believe that everyone should have “Becoming 100% financially savvy” on their list of top lifetime objectives.
No Such Thing as a Free Lunch
Have you ever questioned how your financial advisor was getting paid? You undoubtedly had a sneaking notion that a bank was lubricating his hand. There really is no such thing as a free lunch, as the phrase goes. Underneath the pinstriped suit is the fee and commission structure that has rotted the financial services sector from the inside out.
Even with today’s strict regulations on financial institutions and the requirement that your financial advisor disclose to you the commissions and fees they receive for a transaction, this can still make you uneasy and distrustful and leave you with a sour taste in your mouth.
The reliability, honesty, and systemic over-reliance of the financial services sector are seriously under doubt in the wake of the current global financial crisis. Financial advisors are simply required by law to not offer you anything that is completely inappropriate, not to put your financial interests before their own, and not to develop the best financial plan for you. Your best interests aren’t always prioritised because of this and the desire to gain money. This essay will demonstrate that there has never been a better opportunity to learn about finances and start the process of being your own financial counsellor.
Many companies that offer financial services either concentrate on commissions or service fees. They then provide mediocre financial advise and moderate returns on investment. Financial advisors that are paid on a commission basis work for brokerage firms, mutual fund companies, insurance companies, etc. Fee-based financial consultants charge an hourly or à la carte rate for their services.
Fee-based financial counselling, in this case, is the better option out of the two alternatives. But for a modest investor, commission-based services can be the best option. This is especially true when managing a smaller investment portfolio, which requires less active management. In this case, paying the occasional commission is probably not going to have a significant long-term impact on the portfolio’s returns.
The majority of financial counsellors nowadays are said to as “fee based” (i.e. they earn their crust from both fees paid by you and commissions). The number of true fee-only financial planners is still quite small. Unfortunately, a sizable portion of financial advisers work for financial institutions rather than you and promote financial products in exchange for commission. They’ll probably choose to sell you a product that will give them the largest commission, whether they realise it or not. As a result, their agenda and yours frequently diverge totally.
One-trick pony products
Financial advisors frequently only have knowledge of the products they are marketing. An insurance agent will eagerly sell insurance products, but your stockbroker will advocate certain equities or a basket of shares. In both cases, neither may be fully aware of your financial status, making them unable to offer you advise. At such time, paying down debt or setting up an emergency fund can be the greatest uses of your money.
It’s less important to strive to outperform the market or increase your wealth when you do good financial planning. Making sure your portfolio is well-diversified and other elements of your finances, such as your budget, credit score, insurance coverage, tax strategy, estate strategy, and retirement funds, are in the greatest condition possible is basically what it comes down to. Therefore, comprehensive financial planning goes beyond investing. Along with helping you increase your wealth over time, it ought to enable you to safeguard your assets, pay the least amount of taxes possible, take care of your dependents, etc.
The typical commission-based financial counsellor is unlikely to consider the big picture of finances. However, fee-only financial counsellors are more likely to analyse complete portfolios with objectivity.
When to Consult a Professional
You will need time, education, experience, objectivity, and the will to reach the same level of proficiency as many pros if you decide to perform some DIY financial planning. Sincerelly, very few regular investors have the capacity to act as their own financial advisors. They simply lack the disposition and are preoccupied with living their normal lives. As you develop and carry out your financial objectives, you must be brutally honest with yourself about your level of financial literacy. Punching above your weight, making costly errors, and possibly taking a financial beating are not things you can afford!
As a result, even though I think it’s a great idea to work toward becoming your own financial advisor, I also think it’s important to emphasise how important it is to have a team of Grade A financial professionals (financial, tax, and legal experts) in place that you can consult when you need urgent advice.
Sometimes you’ll need a second, more knowledgeable view than what your DIY financial advisory talents may be able to provide. Here are just a few scenarios in which seeking professional guidance can be helpful:
Any large financial transaction, such as the acquisition of a property, the buying or selling of a business, obtaining an inheritance, etc., when you are changing from one period of life into another (getting married, having children, retiring, getting divorced, etc.).
when you are in a difficult financial situation, feel immobile, and are unsure of what to do next.
In times of significant economic and market change; when you’re seeking for the finest way to safeguard your family in the case of an accident, illness, or death.
To become financially literate, you must have understanding of your financial needs and limitations as well as the methods, tools, and tactics you will use to reach your objectives. You’ll quickly see why even the typical financial advisor makes it their full-time job as you learn more about the complexities of DIY financial planning and wealth creation. The decision is yours as to whether you want to gain expertise or whether you would rather delegate this financial burden to someone else—someone who may or may not have your best interests at heart. In either case, this is not a choice to be made hastily. For more details Mortgage Brokers Melbourne