Whether you work with a professional or do it yourself, who can you trust?
You’re determined to reach financial independence. You’re ready and willing to do what it takes to get there, but you’re unsure how to travel down this road without some advice and guidance. When it comes to planning for your financial future there are many options for people seeking advice, guidance, counsel or whatever. Some options are downright stupid, some are good, others are better, and it’s up to you to decide what’s best for you. How do you know if you can trust the person helping you and know if they truly have your best interest in mind?
Most of us learn about money from three people: friends, family, and fools. It’s not your fault. It’s how our culture is. If you have a question about your retirement plan, instead of talking with the company who offers the account you might ask your co-worker what they do and do the same thing. You may take advice from a family member about how to pay off credit card debt when they’re drowning in debt themselves. Lastly, you may talk with a financial advisor trying to sell you a product that they themselves do not use. But, if you are looking to take your finances to another level. Who can you trust to really help you?
I believe that everyone should have a trustworthy experienced person that they can go to for financial advice. Here are some questions you can ask the person you are thinking about working with. Before working with any financial planner, advisor, coach or professional, you need to know the answers to these questions. I created an acronym to make it simple to remember. EECC Standard.
Education, Experience, Company, Compensation.
Questions to ask any financial professional you may work with:
- What is your level of academic achievement?
- What is your level of professional education?
- How many years have you been practicing as a financial planner/advisor/coach?
- Are you willing to share with me some things you’ve done right, and not so right, with your own financial plan?
- Do you represent a company or organization?
- How can I expect you to represent my needs above the needs of the company you represent?
- Do you receive a commission for any products you’re recommending to me?
- Are you willing to disclose to me what you’re compensated on any given product or service?
You don’t need a perfect answer to each of these questions, just be sure you understand what you’re getting into.
Do it Yourself?
If you decide not to work with a professional and you’re more of a DIY person, keep in mind, anytime you get advice from someone that is all it is, advice. No one has all the answers. But, we have a new thing that does have all of the answers. It’s called Google. You can find answers to any question.
If all of the answers to everything are available, then why are people still bad with money? I don’t believe we have a poverty issue. I believe we have a financial literacy issue. The only thing keeping you from reaching your goals is lack of knowledge.
I have struggled with the question, who can I trust with financial advice. At times I’ve thought everyone is out to get my money. I’ve had family and friends lose large amounts of money because they thought they could trust someone. In the past, you had to be able to trust someone but now the internet is exposing everything. The amount of free information you can learn for yourself is insane. Everyone wants to be in a better financial situation, so why are so many people not?
Most people just need help getting on the right path. Most financial advisors want to either sell you a product or charge a percentage of your assets. Does it really make sense to pay someone for 40 years doing something that you could very easily do for yourself if you just knew where to put your money?
Let me give you an example of the compounding effect of fees. You give your $50,000 of savings to an advisor because you don’t trust yourself with personal finance and it’s something you just don’t understand. You put in $500 a year and you pay him 1.5% to manage your investment. You think, “wow, that is such a small percentage. I’m keeping 98.5% of my investment. I can do that.” You keep your money with him for 40 years. You’re investment will grow to 1.4 million dollars at 10%. You think, “that’s great I can retire comfortably with that amount of money.”
But, what happens if you kept your money in a low-cost index fund that tracks the entire market and charges a 0.04% over forty years? Let’s say your investment grows the same at 10%. Let’s be honest most financial advisors can’t beat the market. How much would you end up with? 1.5 million? No. 2.45 million dollars! One million dollars more! What could you do with one million more dollars in 40 years? Guess where that one million went that you kept with the advisor? To him and his company.
If I offered you a loaf of bread to buy from me and I said you can pay me $1.50 for this loaf of bread. But you knew you could get the exact same loaf of bread for $0.04 cents. If it was the same in every way would you not go with the 4 cent loaf of bread and save yourself a ton of money? This is how you have to start thinking about investing. This is your future and no one cares about your money more than you do.
This is not a post about why you shouldn’t work with a financial advisor. Just understand how they’re compensated and think about if you are making them rich or are they making you rich. I want to help empower you to take control of your own financial situation. Use the free tools you have available and educate yourself. We pay way too much for financial advice. Is there anyone one else in your life that you would gladly pay $1 million for their services? Doubt it. So why do we pay so much for financial “advice?”
The way my business is set up is I want to share all the tools with you for free to help you take control of your own finances and get on the right path. If you decided to work with me one-on-one I do charge a fee. Hopefully, after 12 months you will have everything you will need to reach financial independence. Why would you continue to pay me for 40 years after I have you set on the right path and the only thing you have to do is stay on it?
There are plenty of times when it is important to work with a financial advisor. Like getting started, dealing with an estate, trust or a divorce, etc. But, there is so much you can do on your own. It just takes learning. Read books, read blogs.
If you decide to work with a professional, make sure you understand those questions above. If not, learn online and stick with me for a good amount of time and you’re going to have everything you need.