Why Going to a Financial Advisor Might be Financially Disastrous

December 12, 2007 By Matthew Paulson

Not everyone in the world is blessed with a strong knowledge of stewardship and how to handle their financial household. We all have our short comings and its okay to admit that we have them. Fortunately there are people out in the world that can help us accomplish our goals that we cannot accomplish ourselves. I likely wouldn’t be able to prepare for a triathlon myself, but with some diligence and the right trainer, it could probably happen. What if I chose the wrong trainer? What if instead I chose someone who bought some tapes off the internet and really doesn’t know much about fitness at all? I would be unprepared for the triathlon, over exert my self and be in serious trouble.

This is true for all sorts of professional services, especially financial advisors. There are a lot of good people out there that can help you with your money, but there just as many out there that will actually put you in a worse financial situation than you are now! There are actually two types of financial advisors, and one of them you should avoid like the plague.

The first type of financial advisors is commissioned sales people. For every financial product they sell to a client, they receive a commission. Since the amount of commission they receive varies from product to product, they have a clear financial motive to sell you the financial products that will make them the most money, not what’s best for your pocketbook. This is not to say that all commissioned financial advisors feel they obligation to do what’s in your financial best interest, but there’s a clear conflict of interest.

Commissioned financial advisors and financial planners are why so many people get stuck in bad financial products such as whole-life and other cash value life insurance plans. The numbers are appalling yet thousands of people buy into them each year. Did you know that you can get the same amount of coverage in traditional term insurance for about 7% of what you would pay for the equivalent insurance in cash value life insurance? It’s true!

The other type of financial advisors are fee-only, meaning that you pay them a fee for their information and they make no money by selling you any sort of financial products, whether it be investments, insurance, or anything else. When you’re dealing with fee-only financial advisors you know that the person you’re dealing with doesn’t have that conflict of interest and have no reason to give you bad advice.

Even when you do choose a fee-only financial advisor, make sure that you choose someone who is well qualified to give you financial advice. If you choose someone who’s under-qualified and they give you a bad piece of advice on something such as taxes, you could be out thousands of dollars! Before you meet with a financial advisor, ask about their training, education, and even for a couple of references. You want to make sure you’re dealing with someone who’s well qualified and knows what they’re doing!

The use of credit cards is now increasing at such a rate that they have now taken over from cash as the preferred payment option by consumers. Many analysts believe this to be one of the main reasons why debt has became a serious problem, however, it cannot be ignored that credit cards offer consumers a valuable service especially when you consider the types of credit cards that offer 0% balance transfers, 0% on purchases and cash back credit cards.

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