Written by: Rachelle Vanderzanden
Most people fear the unknown. For many of our clients, financial topics are a huge question mark in their lives, and getting the help they need is scary. There’s fear that they’re going to ask the wrong person and get the wrong answer, but there is also fear that someone will try to take advantage of them. The financial services industry doesn’t always have the rosiest reputation. There have been many well-intentioned laws passed in the last few years to protect consumers, but I think the pages of disclosures it takes to comply with those laws can sometimes make things even more confusing. The last thing we want is for people to not get the advice they need, because of fear.
Ideally, we can ask a few questions, get some clarity, and feel a lot more comfortable with the services that we’ve selected and the people that we work with. If you can find clear, reliable information and thoroughly understand how you are paying for that information (if you are), you will hopefully feel much more comfortable with your financial plan.
When you ask a potential planner/consultant/advisor a question, you will hopefully understand the answer. But that doesn’t always happen. It might just be a simple miscommunication, but I can’t stress enough that it is OKAY to ask the same question multiple times and multiple ways until you understand. If you don’t understand, it is much more likely that you distrust the information you hear. Asking various questions is good for you AND your advisor because it ensures that you’re all on the same page. From our perspective, listening is one of the most critical parts of the job.
If you simply can’t get on the same page, it may not be the right fit for you. There are many different communication styles out there, and finding something that feels comfortable is hugely important. A financial advisor should be working with you to achieve critical long-term goals like providing for dependents and ensuring you’re on track for a retirement that you can look forward to. If your advisor doesn’t understand what you’re looking for and you can’t understand what they’re saying, find someone that can.
Reliability of Information
There are also situations where you may understand what someone is telling you, but maybe you’re not quite sure it’s correct (maybe some trust issues there?), or you just want to learn more. There are often outside resources that you can refer to and do a little more reading on particular topics. We live in an era of publicly available information. Sometimes too much! Your advisor should be able to point you in the direction of additional resources, including financial planning books, blogs, and podcasts.
Like any other topic, it is essential to understand that everyone has their own biases and makes judgments based on their own experiences. There are some credentials that you can look for when reviewing resources. The Certified Financial Planner (CFP®) is probably the most common and sought-after designations in financial services, but many others show someone has worked hard to be an expert in their field. It can also make sense to chat with colleagues and peers to get some feedback, but what makes sense for them may not make sense for you.
Compensation is a huge part of the puzzle. When we do not know how someone is being compensated or how much they are compensated, it is almost natural to assume we’re being charged too much. When I have a repair done on my car, you better believe I want to see an itemized receipt. What am I paying you for?
With your financial advisor, you should precisely understand how the person you’re working with is compensated. Ideally, they offer this information upfront. But if not, ask. A person providing you with a service should not have any problem discussing compensation with you. Financial services can be complicated because there are a few different ways people can be paid.
- Insurance commissions – You don’t pay anything extra for this, but if someone is helping you directly with an insurance policy, they are probably receiving a commission.
- Investment compensation can be structured in a couple of different ways.
- You can be charged a percentage of the assets your advisor is managing or a commission when they buy or sell an investment on your behalf.
- Financial planning fees – Some people charge a fee for advice. This can be on a monthly, per meeting, hourly, or any other increment you agree is appropriate. It is very straightforward, but you often have to do a lot of the leg work yourself.
Don’t Let Fear-Based Sales Paralyze You
A new client’s recent experience inspired this whole post with one of the many companies that offer to help people with loan forgiveness. The emails they sent her used fear-based tactics designed to gather as many people as possible that were concerned about their student loans and the viability of Public Service Loan Forgiveness (that’s a long list of people). They implied that the program was going to get pulled out from under them if they didn’t do something immediately and that people weren’t capable of completing the necessary steps. They offered to pull together some paperwork and charge a hefty fee.
Sometimes, paying for advice makes sense. But if something doesn’t feel right, switch gears and find something that does. For a lot of our audience, time is in short supply. Carve out an hour to attend an educational webinar or meet with an advisor to get a feel for things. Sometimes the first step is the hardest.