Properly managing your money is one of the most important things to prioritize. Money isn’t everything, but it can be a catalyst for what you care about most: retirement, career advancement, lifestyle goals, and more.
Because money management is so critical for our well-being, many people seek help from financial advisors. A great financial advisor can help you build wealth and achieve your biggest goals.
But financial advisors can get a bad reputation. Why? Because the game of telephone is present in all areas of life.
Let’s discuss the 4 most common myths about financial advisors (and debunk them!).
Myth #1 I Don't Need a Financial Advisor Until Later in Life
Your finances are important, but not all financial items fall into the “urgent” category. That can make it easy to "put off" those tasks for a few years or longer. If you're a young professional, retirement might seem like a lifetime away, but the longer you wait, the harder it will be to reach your goals.
Even if you have your retirement plan completely figured out by 25 (impressive, by the way), your financial advisor can help you with more than just retirement planning! Advisors coordinate various financial tasks, such as:
- Newly married couples combining and managing their finances
- Help you prepare to manage your aging parent's finances or step into a caretaking role
- Planning for a family and ensuring you can provide for them the way you want to
- Expert guidance for investment opportunities, whether it be traditional or alternative investments
- Bringing context to everyday financial decisions like cash flow, debt management, large purchases, and more.
At some point—preferably sooner rather than later—everyone needs a long-term financial plan to prepare for retirement, pay off debts, prep for estate planning, and anything else that comes your way. Some will also need guidance on saving for their kid's college, paying off a house, or funding a lavish European excursion—and an advisor can assist with all of those endeavors.
Myth #2 A Financial Advisor Will Put All of My Money Into High-Risk Investments
You’ve probably heard of the saying, “don’t put all of your eggs into one basket.” Your advisor has that same mindset when investing your hard-earned money. Instead of putting all your funds into one investment profile, your advisor will work with you to determine key investing principles, such as:
- Your willingness to accept risk/volatility (risk tolerance)
- The amount of risk you can afford/need to take to reach your goals (risk capacity)
- Your goals
- The unique timelines to achieve those goals (time horizon).
Each of these factors helps your advisor build a diversified portfolio tailored to your needs. This type of investment management enables you to mitigate the risk and return levels that align with your goals.
For example, if you are sure you want to make conservative investments—or if conservative investments make sense for you depending on your season of life—your advisor will help you craft an investment plan with that goal in mind.
However, if you want to diversify your portfolio with riskier investments for more growth potential, your advisor can point you in the right direction. Perhaps you’re interested in learning more about cryptocurrency or want to start investing in real estate through flipping houses. While these are higher-risk investments, the potential gains may be worth the risk if they fit into your goals and plans for the future.
Whatever your goals and passions, your advisor will guide you along the way.
Before you decide on an advisor, be sure you agree with their investment philosophy or their approach to managing your money. If you feel pressured by your advisor to invest in ways you’re not comfortable with, or you disagree with their fundamental strategy for investment management, it may be time to find a new financial advisor that puts your values and goals at the forefront.
Myth #3 I Don't Need a Financial Advisor Because I Can Do It All Myself
The fear of "handing over control" of your money is valid. You’ve worked hard for every cent you’ve earned, so giving up control over your money can be scary. But the job of a financial advisor is to simply guide you through the many complexities of financial management. You’re still the one in the driver's seat in charge of the final decisions.
Only some people have the time or desire to dedicate themselves completely to managing their finances. Even if you have the best intentions, there are likely other things you'd like to spend your time doing. And let’s face it, you can’t be an expert in everything!
There's a lot of information on investing and general personal finance, so you might think you don't need an advisor. But ask yourself these questions to help put things into perspective.
- Do I have good knowledge about investing, how it works, and how to do it properly?
- Do I enjoy wealth management?
- Do I have the time to monitor, evaluate, and make the right changes to my portfolio when needed?
- Am I comfortable investing a significant sum of money on my own?
- Do I feel confident I’ll “be alright” in the future based on my money habits?
If you answered no to one or all of these questions, hiring a financial advisor may be the right decision.
Understanding the basic terms of personal finance and investing is only one hurdle; the other is the impact of our emotions. The emotional component of money is so strong that it can directly influence your decisions. Advisors can separate money and emotion so you can get the complete picture and make logic-driven decisions that keep you on the path to reaching your goals.
Myth #4 A Financial Advisor Will Make Decisions Based on Their Needs and Not Mine
There's a misconception that all financial advisors receive a commission from making risky investments, investing in specific stocks, or selling financial products (insurance, annuities, etc.). To avoid this, make sure you're working with a fiduciary advisor.
Fiduciary advisors are legally obligated to put your needs above their own and always act in your best interest. Why? Because they are paid solely by you, not from commission or kickbacks. They also must be registered either with the Securities and Exchange Commission or one of the states, which strictly regulates their activities and decisions—meaning that they get penalized if they don’t do their job.
Having a good, trusting relationship with their clients is top of mind for fiduciary advisors because they both want and need to act in your best interest.
Financial planning is unique from person to person, so the advisor you choose to work with must understand your values and goals. If you want to start taking control of your financial future or have other concerns about working with a financial advisor, get in touch with our team today.