A wide variety of people find themselves in the offices of financial advisers these days, asking for direction. Something to be wary of though is that not all financial advisers are created equal – and not all will have your best interests at heart when they provide you with financial advice. The reason we’re talking about this today is that some real estate investors we have spoken to have received poor advice, which in retrospect only benefited the person providing that advice.
There are some glaring warning signs to look out for when you are sitting down with a financial adviser though – signs which you ignore at your peril:
- You find that a particular product (or bunch of products) is being promoted or recommended excessively. This often occurs because they adviser is paid a great commission if they funnel buyers to a particular product. This applies to real estate as well as to insurance products and annuities.
- You are offered a black box or no risk solution. These don’t exist. Investing is inherently a risky business – there is no way to get away from that. Sure there are ways to minimize the risk you are exposed to, but that’s about it.
- You are offered the solution before you tell them the problem. An all too common scenario sees a lazy financial adviser apply a ‘one size fits all’ approach. No financial product or strategy will be suitable for everyone.
- They promise to make you rich. Again – just not true. A decent financial adviser will never promise this, because there are no guarantees. Investing is a risky business, and financial cycles have ups and downs that we are all exposed to.
- They talk more than you do. This is a scary prospect, especially during an initial appointment. The adviser should be listening to you, and learning all about our current financial position and resources, as well as your plans for the future.
- Their recommended course of action is too simple or too complex. Your investment roadmap should be relatively easy to follow, but not too easy. A solid financial plan doesn’t need to be fancy either, as too many zigs and zags will inevitably lead to confusion and losses.
- You can’t get a straight answer when you ask your adviser how they are paid. The trouble with a lot of financial advice is that it is skewed by commission payments received by those giving advice. I’m not saying that advisers who receive a commission are dishonest, but I am saying that your financial adviser should always be upfront about the fees that they receive.
Investors who are looking for financial advice need to be careful about who they take their advice from – and that it suits them in terms of where they are now, and where they want to be in the future. The most important thing about financial planning and investment is risk management – if you’re in any doubt, ask anyone who lost money when the real estate market collapsed during the GFC. By all means, get financial advice that is personally tailored to your own personal circumstances – but just make sure that it’s best for you, not best for the adviser.