MISCONCEPTION #1: I don’t need a financial adviser. All I need is a good money manager.
Money management, especially once you retire, is very important. Growing your portfolio to outpace inflation while generating enough income to live on each month is critical. Good money management is non-negotiable. However; we have seen bad financial life decision making wreck good plans enough times to know that human beings are inclined to make bad choices about money. Are you prone to want to move all of your money to cash when the market falters? That may be the wrong move. Could you ever get caught up in taking that dream vacation without analyzing how it would affect your long-term income? That may be the wrong move. An objective third party financial adviser may help you make sound decisions about your financial life by helping you do more than just pick stocks and bonds.
MISCONCEPTION #2: Mutual funds are a safe and a good way to beat the market.
Mutual funds can be a great way to start your investing...low minimums...potential diversification....easy. But once you are a million dollar investor, a mutual fund can be your most expensive way to go and you should determine if you have outgrown your mutual funds. According to Investopedia, the average cost of a mutual fund is between 1.3% - 1.5%. So they are not cheap. While potentially having larger minimum account sizes, low cost ETFs (Exchange Traded Funds) or portfolios where you actually hold the individual securities (vs. a mutual fund where you don’t actually hold the stock) could be a better option for you.
Please note, ETFs will fluctuate with changes in market conditions and are not suitable for all investors. Since ETFs trade like stocks, they are subject to brokerage fees and trading spreads. Therefore, ETFs are not effective for dollar cost averaging small amounts over time, and likewise any strategy using ETFs must account for these additional costs. ETFs do not necessarily trade at the net asset values of their underlying holdings, meaning an ETF could potentially trade above or below the value of the underlying portfolio. Also, equity investing involves market risk, including possible loss of principal.
MISCONCEPTION #3: Any financial professional can help me.
A good financial adviser helping a young couple make the right decisions starting out their work life may make a meaningful difference by the time they reach retirement. However; a couple that has wealth of ten million dollars may also experience fruitful benefits from such a relationship but the type of advice will be much different. At this level, one needs a specialist. If you needed brain surgery you would not ask your primary care physician to operate on you. You need to treat your wealth the same way. Have you outgrown your financial professional?
MISCONCEPTION #4: If I don’t see an expense on my statement I must not be paying it.
Beware of hidden costs and fees. Most investors have no idea what their investments costs are. It is your right and duty to know. Before investing in anything, make sure you know the hidden costs such as management fees, 12b1 fees, trading costs, in addition to the management fee that you may pay your adviser directly.
MISCONCEPTION #5: It is OK to work with an adviser that has no team.
There are 3 reasons that you need to work with a team. The first reason is specialty. As one’s wealth grows so does the expertise level required to manage one’s financial life. In our experience, this requires different skill sets and mastery. Mastery comes by spending time and gaining experience. One person, as good as they may seem, cannot be an expert in all of the areas that you need. The second reason is that you want your advisers to last beyond you. What happens if your adviser gets sick, disabled, or dies? A good team, where you actually have a relationship with multiple people in the organization, can help alleviate this concern and help keep you on track for multiple generations. Finally, a third reason to choose a team is that the larger the organization that you are dealing with the more favorable pricing you should be able to get. The financial business is driven by numbers, and the bigger organizations get the most attention, price breaks, and notice on new things like technology and innovations which could then benefit you directly.
MISCONCEPTION #6: All financial professionals are required by law to make recommendations that are in my best interest.
You would think that a law that forces financial professionals to recommend only solutions that were in the best interest of clients would be a welcome and logical idea. That is not the case. The word used for someone that is held to a standard of only providing advice that are in the best interest for you is a “fiduciary”. The truth is that not all financial professionals have been operating under the fiduciary standard. When someone operates as your fiduciary they are required to put your best interest first. Period. Not all financial professionals have been required to operate under the fiduciary obligation. This is a special relationship that has only existed between Investment Adviser Representatives (IARs) and you. A IAR is typically someone that works with or owns an Registered Investment Advisor (RIA) firm. Any broker working for or representing a broker-dealer has not fallen under the same standard until the Department of Labor changed their guidelines in 2016. Know which mandate your financial professional has been operating under and choose someone that was your fiduciary before that was the “cool” thing to do.
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Choosing a Financial Adviser isn’t easy. Call us on 08174942611 to request our free guide on How to Unlock Your Financial Future with the Right Adviser.
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