Advisors Taking Own Advice?

Submitted by Sterling Raskie on Thursday, October 24, 2013 - 12:00pm
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Choosing your right financial advisor comes down to your personal preferences. One great question: Does the advisors practice what they preach? If they don’t follow their own advice, why should you?

Some financial advice, of course, applies to you and not to the advisor, such as words of wisdom on reducing debt if the advisor doesn’t owe any (and manages money well to avoid it).

What about the advisor not practicing what he or she preaches? For example, an advisor recommends where a client should invest a Roth individual retirement plan. The advisor hopes the client wants to invest with him. The advisor also, however, only recommends commissioned or load mutual funds while putting his 401(k) money in index funds.

This is common, especially in bigger firms employing many advisors and offering high-commission products such as annuities and commissioned mutual funds for clients’ IRAs or retirement plans. The firm’s own 401(k) plan, meanwhile, holds only index fund options and zero annuities. Yet their advisors still tell clients that their products work best for the clients.

Why doesn’t the firm offer the products in their own 401(k)?

You often see an advisor or broker tout the next hot fund or the stock of the day. “Sounds terrific,” you reply. “Do you own it yourself?” Why or why not?

Generally you find he doesn’t own it and just parrots a recommendation trickling down from company headquarters. Another great question: “Would you recommend this fund or stock to your own family?”  Watch his face – it often reveals more than their words.

Be careful listening to the talking heads on TV: Endorsements, book deals and broadcast networks generally bankroll self-proclaimed financial gurus on air. Dig deeper and you often find some of these gurus actually lost a lot of money investing or piled up enough debt to file bankruptcy.

An advisor recommends sound money management while in his wallet sits a maxed-out credit card and in his mailbox waits a high, overdue car payment; he lives paycheck to paycheck. This advisor denies any such trouble – watch his face – but ask how he feels about money, debt, savings and financial preparedness such as an emergency fund. How can an advisor manage your money if he lacks control over his own?

What’s your gut tell you if you go in for budgeting advice and the advisor tries to sell you insurance? If your advisor’s practice is new but he sits in a fancy office with a new luxury car parked out front? Maybe he inherited money. Maybe not, too.

Ask a lot of a prospective advisor. You’re their potential client – and he is your potential client, too. Do an Internet search on the advisor’s business and verify his industry credentials, if any. Some credentials include:

·         Certified Financial Planner (CFP) means the advisor passed initial and ongoing requirements of the Certified Financial Planner Board of Standards.

·         Chartered Financial Consultant (ChFC) requires at least three years’ experience in the financial industry before passing finance courses at The American College.

·         Series 65, granted by the Financial Industry Regulatory Authority (FINRA) and that qualifies an advisor as an Investment Advisor Representative (IAR) in certain states.

You want an advisor that believes in his own money advice – and who, most of the time, follows it himself.

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Sterling Raskie, MSFS, MBA, CFP, is an independent, fee-only financial planner at Blankenship Financial Planning in New Berlin, Ill. He is an adjunct professor teaching courses in math, finance, insurance and investments. His blog is Getting Your Financial Ducks in a Row, where he writes regularly about investments, retirement savings and financial planning.

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