While it might sound impractical (and in some cases it is), deciding not to use the service of a financial advisor might actually be a good idea. In fact, for some people, it can be the best decision made in their journey to financial independence.
If you’re a firm believer in using the help of a financial advisor – that’s great! There are people who really need one and, truth to be told, it can make your life easier.
But if you’re one of the people that want to try every other option before opting for a financial advisor, this article is for you! Here are a couple of reasons why you don’t need one. Hopefully, you’ll understand better whether hiring a financial advisor is the best choice for you:
Education & credentials
Truth be told, trusting the financial industry is no easy thing. In fact, what does it mean exactly to be a “financial advisor”? Because the term is so often misused, it’s difficult to know what a financial advisor is actually qualified to do.
Let’s talk first about qualification standards: there are TONS of people who call themselves financial advisors and have 0 qualifications or formal education in that area.
And why is that? Because in the U.S., requirements for these jobs aren’t the same in all states. While some states are strict, others will ask for a little more than a high school diploma to let you practice your “financial advisory”.
They are generalists
Most financial advisors will promise you to move heaven and earth for your finances and investment portfolio. For example, there are some financial advisors that are “specialized” in risk management, stock market options, bonds, exchanging currency, wealth accumulation, wealth distribution, estate planning, legacy planning, cryptocurrency, compound interest, and other things.
But the truth is unless they’re vampires, there isn’t one human on this planet that can manage ALL of these things so well and effectively. This rule applies to anyone who claims to know all about the sun and the stars, but even more to someone who claims to be such an expert in financial advice.
How they make their money
Financial advisors are paid in three ways:
- they take a commission on products that they sell to you
- they charge an hourly rate
- they take a percentage of the amount of money they take care of for you
Sometimes, advisors can combine these payments, as they make their money both through managing your account and selling you products on commission.
In my opinion, this is a HUGE no-no. First, financial advisors can buy and sell stocks to complete your portfolio, and if they work on commission, some of the investments in your portfolio might get sold or bought just to complete those commissions.
Also, there are many financial advisors who operate in more than one financial network. They can suggest to you all kinds of people. from accountants, attorneys, to real estate agents, and might get paid for doing that.
Fiduciary duty means that someone (your financial advisor) has the ethical obligation to act in the best possible interest of their client, having full disclosure and honesty at the center point of the business relationship. In theory, this must be a given.
In practice, is oftentimes not. Of course, a financial advisor can promise you that they’ll respect their fiduciary duty. But in reality, investments are never guaranteed and numbers are easy to manipulate in order to make them look more positive than they actually are. So it’s difficult to tell if an advisor is putting your best interests before their own.
It’s extremely easy to become dependent on your financial advisor, ESPECIALLY if they earned your trust. When you’re passing your financial responsibilities to someone else, you’ll never actually learn to manage those responsibilities on your own.
You can’t because someone else did it for you. Even more, when you’re handling the responsibility for your own investments, you’re also losing money in FEES.
The money you give to a financial advisor might not seem a lot, but it is in fact a huge amount of money in the long term. So don’t be tricked by small numbers: even a 2% fee can wipe out a huge amount of your future wealth building.
Not enough time
If you’ve got this far, you’re probably thinking by now: “Ok, if I decide not to hire a financial advisor, how am I gonna manage to do it all?” And that’s a great question because one of the biggest difficulties when it comes to financial independence is that you need to be intentional.
You need to be disciplined about your spending, about your saving, about your investing, and about your TIME. Finding the proper financial advisor who has the needed qualifications, who understands your goals, will take A LOT of time. In the meantime, you can learn to do it yourself.
Investing can be easier
The basic rule is to make only investments that you understand. If you ever noticed, many people who managed to make a living in the financial industry will rather die than tell you this simple rule.
Why? Because advisors will go out of their way to over-complicate the process and expose you to mind-numbing amounts of products, services, and things to invest in.
If a financial advisor makes things wildly complicated and makes you reach the conclusion that you could never make your own financial decisions, then he/she will ensure a growing client base. So before you fall for that, think twice.
They have a legal advantage
When you sign your contract with the chosen financial advisor, they are the ones who draft the contract. Honestly, after years of experience in writing these things, they know EXACTLY how to draft a contract that will protect them first and foremost.
If you’re about to close a deal with a financial advisor, first make sure you take a close look at everything you’re about to sign. You might find that there are lots of conflicts of interest hidden in the fine print.
There are many financial advisors who will use fear as a tactic to keep you under their wing. It’s one of the most despicable things in the industry, and yet, it’s happening.
It’s not unusual for some advisors to lure you into feeling uncertain about your ability to invest without them, and to increase your fears when it comes to looking at other options.
It’s a way of keeping you hooked on them, so they don’t lose work. Some advisors might try to say things like: “You wouldn’t perform open-heart surgery on yourself, would you?” But these kinds of unfair analogies shouldn’t work for you.
Emotions get in the way of things
Just like the fear-mongering mentioned above, your emotions can really alter your decisions when it comes to your relationship with a financial advisor. It isn’t hard to develop a close friendship over time.
But this isn’t recommended. I honestly believe that business and friendship should never be mixed. After all, your emotional collection with someone can easily cloud your judgment, especially when it comes to financial decisions.
That’s why you should always remember not to make room for casualness when you’re handling your money. After you feel that you learned everything that you had to learn from your financial advisor, feel free to be as friendly as you want!
Achieving financial independence
If you want to achieve financial independence, hiring a financial advisor can be a risky deal, as it’s likely they won’t suggest you the needed decisions in order to be financially independent.
Or, in a best-case scenario, you’ll keep looking until you find a financial advisor that will actually teach you what you need and will let you experiment for yourself!
Let’s be honest, at the end of the day, no one cares more about your money than you do. By achieving financial literacy, you can understand what are the best investments and accounts that you need in order to grow your wealth!
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