February 9, 2009, 6:55 am

Is My Financial Adviser Playing Me? Part 2

by: The Financial Blogger    Category: Financial Planning
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Last Friday, I have discussed a fundamental question you must ask your financial adviser: “how much do you make with me and how are you paid by your company to sell me financial products?”. If he gets evasive and look around to change topic, change financial adviser right away 😉

We will take a look another trick to find out if you can trust your financial adviser or not.

Quality of financial and rational arguments

How many times you got the feeling that you need to invest in something because it is “hot” or that you need insurance because you would certainly not want the worst to happen? Count how many times it happened to you and you will know how often you have got fooled by a financial adviser 😉

The name says it all “financial adviser”. His job is to give you advices about your personal financial situation. However, his reasoning should be easily demonstrable and logical. The job of a financial planner is actually to take your whole life, put it in term of numbers and crunch them in order to come back with a viable plan. It is his responsibility to protect you from your fears, your gambling tendencies (with investments) and other emotions that could lead your personal finance down the toilet.

Therefore, he should not play with your emotions in order to get you to sign. It is normal that he inspires you trust and that he is convincing while offering you an investment strategy or a solution to consolidate your debts. However, you should be able to point out the logical reasons why you should follow his financial advices.

You might not be able to do it by yourself so don’t be afraid to ask him to write down the financial advantages of his offer. A good financial planner will be able to write down in point form all the logical reason why you should do a financial move. He should also be able to demonstrate his point through calculations as well.

For example:

If he is saying that you will “definitely save money with this strategy” don’t only ask him how but how much! If he knows that you will save money, he must be able to back it up with numbers

“This investment strategy will give you a better yield”. WRONG! An investment strategy can give you a better expected investment return because of its diversification or tax advantage. However, your financial adviser cannot tell you that you will make more money by switching investments around. If he knew, he would be either on his jet for the Bahamas or on his way to prison 😉

“This is the best option for you and your family”. Why? Why the hell my family would benefit from my financial decision? You need to be able to get numbers and proof 😉 Everybody needs insurance, however, the amount and product required to fulfill your need will vary from an individual to another (you can ask the question to anybody who commented on my Primerica series 😉 ).

The most important thing to remember is that emotions alone are not enough to make a financial decision. Personal finance is not a matter of value and feelings; it is a matter of number first, than you decide what is important for you. However, numbers will remain numbers…

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I think I am vulnerable in this though. I am not good with numbers. My financial planner can simply give me tons of numbers and I will still believe her!! But she seems competent and trustworthy. I think the good thing for me is to be prepared for that kind of meeting. Reading your blog is for me a good step hehehe

Some highlight recent trends on financial institutions that are more demanding, requiring more money down, better income-to-debt and that are putting high-pressure on sales persons. Anyone can call himself or herself a “financial planner or financial adviser”. Be wary of people who call themselves that way but who appear more interested in pushing specific financial products at the expense of your real needs and goals.

I enjoyed reading the series “How To Find A Good Financial Advisor “ (http://thefinblogger.wpengine.com/how-to-find-a-good-financial-advisor-part1) and Sophie, it doesn’t hurt to re-question her position… 🙂

Very interesting series. I work and have studied in the finance sector and still find all of this to be very difficult so I cannot imagine how tough it must be for someone who does not have much experience in the area… just not easy!

In Quebec, a financial planner is a recognized title. This means that if you call yourself a financial planner and you didn’t pass the exam, you are in trouble.

Unfortunately, I think we are one of the only place where there is a difference between a financial adviser and a financial planner 😉

Ahhh French Canadians!

*just kidding*