More Arrows for Advisors

It's bad enough when you need to spend years of experience and time to be qualified to continue helping people get financially secure, battling government bureaucracy, and ASIC incompetence, without the need for people to be sending out emails with these comments for which they are not held accountable.

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Paridhi Jain,

Recently, I wrote an article for the Sydney Morning Herald, on?whether you should hire a financial advisor. (In case you’re interested, I currently write a?weekly column for SMH.)

I want to go a bit deeper on the topic of hiring a financial advisor, because it’s a big one.

Here’s what I didn’t say in my column:

I genuinely believe that most people do not need a financial advisor. In fact, I think most people should?not?be working with a financial advisor…yet.

Now, let me make something very clear… I’m?not?anti financial advisors.

I’ve spent hundreds of hours working with some?great?financial advisors – all of whom had their heart in the right place, and got into the profession with a desire to help people.

So, I’m not saying there’s anything wrong with financial advisors. I’m saying this because most people aren't at a stage where using a financial advisor would be fruitful.

Most people go to a financial advisor for the wrong reasons, wanting things from an advisor that they’re not well suited to delivering…and then feel disappointed or ripped off.

What a lot of people don’t realise is that financial advice originally was an industry that focused a lot on helping customers understand (and buy) financial products.

So, the goal of financial advisors used to be to recommend (and sell) you financial products (e.g. insurance policies, super funds, investments etc).

Nowadays this has changed, but even so, this historical context means that there are certain things financial advisors are not typically well-equipped to deal with.

For example…

If you aren’t good at saving money, a financial advisor might be of limited value.

Helping someone learn to save money requires a lot of psychological and behavioural change. That’s not something financial advisors are trained in. So, most advisors prefer to work with clients who?have?savings, and want advice on what to?do?with the savings.

If you are scared of investing, a financial advisor might be of limited value.

Sure, they’ll design a portfolio for you. But how do you overcome the fear of losing money so you can actually start investing and not panic every time the market drops?

Financial advisors can come up with strategies galore, but most of them aren’t trained to help you expand your risk appetite so you feel comfortable and confident taking risks.

If you don’t know anything about investing, financial advice can be dangerous.

Yes, the less you understand, the more vulnerable you are to being taken advantage of.

But even good financial advisors might push higher-risk options because they genuinely believe you’d benefit…and you wouldn't know how to say ‘no’ because you wouldn't know any better.

So, here’s a quick checklist:

Do you have consumer debt you’re struggling to pay off (credit cards, afterpay etc)?

Do you struggle to consistently save money, or live pay-to-pay?

Does the idea of investing scare you?

Do you feel like you don’t understand the first thing when it comes to investing?

Do you have less than $5,000 in savings? (...because remember, financial advice can easily cost several thousand dollars, which would wipe out all your savings)

If you said ‘yes’ to any of the above, you might be better off focusing your efforts on learning some foundational finance skills before engaging a financial advisor.