If you have an extra minute, please head over to Babycenter to check out the guest post I wrote for them: Can you afford a baby? The answer may surprise you.
Today I’ve got a little bit of a rant for you. Nothing gets my blood running hotter than a supposed “financial advisor” selling people on an approach that all of the evidence says is about as valuable as the cat litter I throw into the trash every night, and then charging them an arm and a leg for the service. There’s so much BS out there, and unfortunately it’s often the people at the lower end of the income spectrum who get the worst of it.
So you can imagine my outrage when I came across this article questioning whether professional investment managers should be using active or passive strategies. Despite all of the evidence in favor of a passive approach centered around low-cost index funds (if you have any doubt, please read this: How to beat 80% of investors with 1% of the effort), there are still many, many advisors pushing an active strategy. Why is that? Look no further than this quote directly from the article from a guy named Jason Romano, himself a professional financial advisor (who, to his credit, seems to have moved most of his own clients into an index-centered approach):
Romano says many advisors may hesitate to add passive funds to the portfolio mix because they fear that clients may believe they can do it on their own.
Are you f***ing kidding me?
So these so-called professionals, many of whom are held to a fiduciary standard REQUIRING THEM BY LAW to do what’s in the best interest of their clients, are purposefully providing a sub-standard service in order to make their job look more complicated so that their clients perceive more value than actually exists? I’m sorry but the only professional designation someone with that mindset deserves is professional scam artist. I mean, we’re not talking about someone selling you a washing machine when they know the store down the street has it for less. We’re talking about someone who has a real live person’s financial future in their hands. Based on their decisions, retirement will be achieved or lost. Children will be able to afford their choice of school or not. Dinner will be on the table every night, or it may not. If they can’t keep those realities in mind and actually do what’s in the best interest of their clients, then they need to get the f*** out of the way. Because the truth is that if you’re only looking at investment returns, then you’ll be much more successful using a simple strategy on your own than paying someone to try and beat the market. Don’t believe me? You don’t have to take my word for it. The facts speak for themselves.
How can you find good advice?
Ok, deep breath. With all of that said, I do believe there can be a lot of value in working with a financial professional. I myself am working towards my CFP® designation because I believe strongly in that fact. But you need to be very, very careful that the person you work with truly has your interests, and not your money, at heart.
So, how can you do that? First of all you need to educate yourself. My goal with this site is to help people build up a solid foundation of financial knowledge, but there are lots of other great resources as well. Bogleheads.org has an amazing wealth of knowledge, particularly when it comes to investing. The blogs written by Mike Piper, Rick Ferri and Dan Bortolotti continually have incredibly practical and insightful investment advice. I Will Teach You To Be Rich by Ramit Sethi was one of the first personal finance books I ever read and really opened up my eyes to some of the very basic but powerful tools available to us all. And if you want to know where the core of my investment philosophy comes from, look no further than the book Unconventional Success by David Swensen, Yale’s famous Chief Investment Officer.
Second, you need to set the proper expectations. A financial planner is not going to help you get better-than-market investment returns. Beyond the fact that beating the market is an irrelevant goal in addition to an incredibly unlikely outcome, the true value of a good financial planner is in helping you develop and implement a comprehensive financial plan. This will include investments, but will also include things like setting appropriate goals, crafting a meaningful budget, making sure you have proper insurance, creating an estate plan, helping you buy a house, creating a plan to pay for college, and anything else in your life that has any kind of financial component. It’s the comprehensive planning that holds the real value, not an empty promise of exorbitant investment returns.
Finally, you need to know where to look. NAPFA is an organization of fee-only financial planners, meaning they sell only advice, not products. Garrett Planning Network is an organization of financial planners dedicated to providing financial advice on an hourly basis, making it affordable to a broader base of the population. But the fact that someone belongs to an organization like this isn’t enough. You need to have done your own research and know what you want from the relationship. That way you can lead from a position of strength and quickly weed out anyone who falls into the “scam artist” category.
In the end, only you have your own back
When it comes down to it, you’re the only one who truly has your best interests at heart. There are people who can help you make your goals a reality, but you have to understand that there are likely even more who are much more interested in simply taking your money and running. And the financial services industry is one of the worst in this respect. Educate yourself and thoroughly evaluate any prospective advisor before entrusting them with something as important as your financial future. After all, if they’re worried that you could do their job for them, they’re probably right.
Full disclosure: The links to books within this post are affiliate links and will earn me money if you purchase the product. As always, I only include affiliate links for products I actually use and have proven helpful for me personally.
Image courtesy of Stuart Miles / FreeDigitalPhotos.net