For too long, too many people have turned the responsibility for their investment decisions almost entirely over to their financial advisors. This is a bad idea. No one will manage their own money as well as you can. In my view, anything you can do to create a better life for yourself and your dependents is fair game. Therefore, becoming financially literate and reducing any over-reliance on financial advisors is part of this overall goal.

Being financially literate not only empowers you and your finances, but also sets a really good and much-needed example for those around you. In my opinion, “Becoming 100% financially literate” is something that justifies being on everyone’s top life goal list.

There is no such thing as a free lunch

Have you ever wondered how your financial advisor was paid? He probably had a suspicion that some financial institution was oiling the palm of his hand. Well, as the saying goes, there really is no such thing as a free lunch. Beneath the pinstripe suit is the thinly concealed fee and commission structure that has rotted the financial services industry to its core.

Even now, with financial institutions heavily regulated and the responsibility of your financial adviser to disclose to you the commissions and fees they are paid for a transaction, this can still make you feel uncomfortable and wary, and leave you with a bad taste in your mouth. your mouth.

Following the recent global financial crisis, there is a huge question mark over validity, integrity, and systemic overreliance in the financial services industry. Rather than being required to put your financial interests ahead of their own and create the best financial plan for you, financial advisors are only required by law not to sell you something that is completely inappropriate. This, combined with the need to make money, can sometimes mean that your best interests are not always at heart. As this article will show, there has never been a more appropriate time to gain financial knowledge and embark on the process of becoming your own financial advisor.

Many financial service providers focus on a) commissions or b) service fees. In turn, they dole out some regular financial advice and offer average returns on investment. Commission-based “financial advisors” are working for commissions paid to them by a brokerage firm, mutual fund company, insurance company, etc. Fee-based financial advisors are selling their skills and time for an hourly or à la carte rate.

Of the two different approaches, fee-based financial advice is the lesser of two evils, so to speak. However, commissioned services may be the most suitable for a small investor. This is particularly true in the case of a smaller investment portfolio where less active management is required. In this case, paying an occasional fee is probably not going to ruin portfolio returns in the long run.

Many financial advisors are now what they call “fee-based” (meaning they earn their share of both the fees paid by you and the commissions). True one-time payment financial planners are still a rare breed. Unfortunately, a very high percentage of financial planners do not work for you, but are essentially salespeople for financial institutions who market financial products for a commission. They will consciously or unknowingly tend to sell you a product that pays them the highest commission. So many times their agenda and yours are completely different.

One Trick Product Ponies

Often the only product a financial advisor understands is the one they are selling. An insurance agent will enthusiastically promote insurance products, while your stockbroker will promote individual stocks or a basket of stocks. In both cases, neither of them may be aware of your full financial situation and therefore cannot give you advice. The best use of your money at this time might be to reduce your debt or build an emergency fund.

Good financial planning is not so much about trying to beat the market or multiplying your wealth. It’s really about making sure your portfolio is well diversified and that other aspects of your finances—budgeting, credit ratings, insurance coverage, tax planning, estate planning, and retirement accounts—are in the best possible shape. Therefore, proper financial planning encompasses more than investments. It should also allow you to protect your assets, minimize your taxes, and take care of your dependents, etc., while increasing your wealth over time.

Your average fee-based financial advisor is not likely to think about the big financial picture. On the other hand, fee-only financial advisors are likely to be more objective when analyzing entire portfolios.

When to get professional advice

If you’re going to do DIY financial planning, you’ll need time, education, experience, objectivity, and the inclination to achieve the same level of proficiency offered by many professionals. To be honest, very few average investors have the ability to become their own financial advisors. They just don’t have that inclination and are too busy with their everyday lives. Therefore, you need to be brutally honest with yourself about how financially educated you are as you create and implement your financial plans. You can’t afford to hit above your weight, make costly mistakes, and possibly suffer a financial knockout!

So while I think it’s a great idea to strive to become your own financial advisor, I think it’s important to note that I also think it’s crucial to have a team of A-grade financial professionals (finance/tax/legal experts). ). who you can turn to for critical advice.

There are times when you will need a more experienced second opinion than your DIY financial advice skills may be capable of. Here are just a few examples of when it is helpful to get professional advice:

1. When you are moving from one stage of life to another (getting married, having children, retiring, getting divorced, etc.)
2. Any major financial transaction such as buying a property, buying or selling a business, receiving an inheritance, etc.
3. When you find yourself in a financial impasse or suffering from inertia and it’s not clear what to do next.
4. When you are looking for the best way to protect your family in the event of an accident, illness or death;
5. In times of great economic and market changes.

Conclusion:

In order to become financially literate, you will need to gain an understanding of the financial requirements/constraints you have and the strategies, tools and techniques you will need to achieve your goals. As you delve into the complexity of DIY financial planning and wealth building, you’ll quickly realize why it’s a full-time occupation for even your average financial planner. The question is whether you want to become an expert, or whether you would rather transfer this financial responsibility to someone else…someone else who may or may not have your best interests in mind. Either way, this is a decision not to be taken lightly.