We all recognize the wisdom of avoiding any discussion of politics and religion at the family dinner table. Some of us prefer to keep certain things private, while others may be more open to sharing without the required urgency. However, when people come together, it is always the person who starts giving unsolicited financial advice and even an investment advice, delivered in a soft quiet voice and insists on referring you to their advisor.
It’s almost impossible to hold back in a financial discussion when we’re bombarded with varying and often conflicting predictions about the prospects of our economy and the volatile stock market. These worries are not too far from reason when we feel the burden of making sound financial decisions to protect and optimize our wealth potential. So, in the end, a referral to a financial advisor, requested or otherwise, may not be so unreasonable, especially if it comes from someone close to you.
In fact, this is how most people begin their advisor search, a referral from a favorite aunt, uncle or their accountant. But, should you trust your life savings to another person based solely on an offer?
We tend to trust those around the proverbial dinner table. Still, even if the experience with their financial advisor was successful, what assurance do you have that the same advisor will deliver similar results for you or that your uncle even completed any meaningful due diligence on his advisor?
According to a National Financial Educators Council survey last year, mismanagement of personal finances costs approximately 254 million adults in the US. US, a total of more than $352 billion annually. The importance of acquiring the necessary financial intelligence to build wealth has never been more critical if we are to reduce our growing dependence on the country’s social and welfare programs, which is already at a breaking point. The importance and benefits of selecting the right financial advisor for guidance cannot be understated. Perhaps choosing a financial advisor based on “gut calls” built around a familiar recommendation and anecdotal credibility check should not replace the need for data-driven, evidence-based due diligence.
Choosing a financial advisor can be quite tricky, considering that the US Bureau of Labor estimates that there are over 350,000 professionals who call themselves financial advisors in the country, not to mention another 300,000 who work for broker-dealers and dispense financial advice under a myriad of . of different professional terms. Compounding the confusion, advisors accompany designations after their names with unfamiliar acronyms only to exacerbate the consumer’s challenge to find clarity and familiarity.
In addition, not all of the information you receive about a financial advisor is accurate, up-to-date or complete. While the Financial Industry Regulatory Authority, a self-regulatory organization, and the US it. Securities and Exchange Commission are doing their part to introduce fairness and transparency, much more needs to be done. Too many bad actors are still navigating the regulatory and industry loopholes to jeopardize the financial security of many vulnerable consumers.
While looking for and trusting someone with your wealth can seem very daunting, in light of the current challenges, the benefits of having the right financial team help you plan dramatically outweigh the bad. According to a recent Vanguard study, working with a financial advisor can potentially increase your returns by 3% annually. So perform your due diligence on advisor candidates, and get smart to think critically through the mounds of information available in the market.
As you gather with friends and family this holiday season, share the warmth and laughter and reflect on the virtues of hard work and planning. Selecting the right financial advisor may be your most important financial decision.
Steven Park is a principal and executive director of Alexandria Capital LLC, based in New York. A more than 30-year veteran of the financial services sector, he serves as a senior advisor and board member to startups, entrepreneurs and business builders.