Article Date: 12/1/2013

Personal Wealth Health
Financial Management
personal wealth health

Advising Yourself

Be wary of blindly following advice from financial planners.



Today's fast-paced world places heavy demands on your time. Managing your personal finances is one more brick in that heavy load. That's why many business owners and professionals look to a financial advisor for guidance.

I won't suggest that using a financial advisor is a poor decision. However, you should exercise a great deal of caution if you decide to look to someone else to make important financial decisions for you.

For example, if you're getting financial advice from an employee of a stock brokerage, you need to be aware that your advisor receives a commission based on your trading activity. The more you buy and sell, the more your advisor is paid.

I believe most investors are better advised to take the time to learn the basics of financial management themselves so that they can make their own financial decisions. While you may never achieve the level of knowledge of a full-time professional, no one is going to be as concerned about your money as you. With a little effort, you can be your own financial advisor.

However, if you still feel the need to look to someone else to help with your investments, you should be aware of some of the signs that the advice you're getting is not in your best interest.

Life insurance advice

If your financial advisor is in the insurance business and tries to sell you a whole life insurance policy, you may need a different advisor.

In most cases, your best bet is simple-term insurance, at a cost of as much as 80% less than whole life.

In such a case, be sure to get a second opinion from a professional who is not in the insurance business.

Retirement account advice

If you have a tax-deferred retirement account, don't let anyone tell you to put tax-favored instruments, such as municipal bonds, in it.

Since everything in conventional IRA and 401(k) accounts is tax deferred, this makes no sense. You want investments likely to generate large returns where they will be sheltered from taxes until you retire.

Mutual fund advice

B-class shares in funds may sound tempting if an advisor tells you that you pay no sales fee. However, you'll be hit with as much as a 5% deferred sales charge when you sell them.

Deferred sales charges work on a sliding scale. If you sell the fund within the first year, you'll pay as much as 5% of the fund's value.

In the second year, the fee may be 4%, and so on until the sales charge runs out, typically about five years. When you pile an annual management fee on top of these charges, it would be difficult for you to make out well, but the person who sold you the funds will be just fine.

Become financially informed

This is just a sampling of the potential pitfalls that lie in wait.

Even if you depend on an advisor to help with your finances, your only sure protection is a working knowledge of personal financial management. Once you develop that knowledge, why pay someone else to look after your money? OM

Information in this article is provided for educational and reference purposes only. It is not intended to provide specific advice or individual recommendations. Consult an accountant or tax advisor for advice regarding your particular situation.


Optometric Management, Volume: 48 , Issue: December 2013, page(s): 62