What Your Financial Advisor May Not Be Telling You About Retirement

Essential Truths That Impact Your Financial Independence

Financial advisor working on laptop
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 Is your financial advisor telling you everything you need to know to help you achieve financial independence? Do you even know where to turn to for trusted guidance and advice with important money matters?

Every one of us holds the keys to our own financial success. Can you afford to leave your security entirely in the hands of someone else?

According to Liz Davidson, CEO and founder of Financial Finesse – a leading provider of unbiased workplace financial wellness programs, there are essential truths everyone must understand to make informed decisions about money.

  Many advisors who act as real financial planners rather than salespeople are great at acting in the best interests of their clients to help facilitate smart financial decision-making. Unfortunately, many financial advisors are operating within a somewhat broken system and a growing number of financial advisors have openly expressed their views on things they wished they had told their clients earlier in their careers.  The reality is that most financial advisors are not trained to be comprehensive and are not paid to holistically evaluate all potential solutions, especially those that they cannot receive compensation for delivering.

As a result of this often confusing financial services industry, many people aren’t sure if their advisors are always acting in their best interests. Liz Davidson is a pioneer in the unbiased financial wellness movement. Her book What Your Financial Advisor Isn’t Telling You: The 10 Essential Truths You Need to Know About Your Money, due to be released on January 5, 2016, breaks through the financial jargon in an easily accessible manner of financial education that empowers change rather than enabling people to assume somebody else holds the keys to their own financial success.

From my personal experiences as a financial planner and educator, here are some aspects of the retirement planning process that financial advisors don’t always do the best job of sharing with clients:

Everyone needs a personal spending plan and a plan to minimize or eliminate debt.

The majority of financial advisors working with high net worth investors rarely discuss topics of budgeting and debt.

However, these two topic areas are critical elements of the retirement planning process regardless of your net worth situation.

Get guidance from a fiduciary or unbiased financial educator whenever a 401k rollover, pension decision, or purchase of an insurance product is being considered.

Many financial advisors are only paid to sell certain products; that fact alone creates potential blind spots. Pre-retirees are faced with some especially difficult decisions.

For example, consider these questions. "When should I begin receiving Social Security? Should I choose a monthly pension or take a lump sum rollover to an IRA?" A “fiduciary” must always act in your best interests as opposed to simply meeting much less rigid “suitability” standards. Decisions like the ones mentioned above should be guided by a professional with an unbiased perspective.

Costs actually matter a lot.

Saving for retirement is a challenge when you focus on all of the unknown factors such as life expectancy, future health care costs, and market performance. Many of those potential obstacles are out of our control. That’s why you should focus on things you can control like creating a diversified investment portfolio. Keeping your investment management fees as low as possible is something else you can control.

On average, low-cost passive investment strategies tend to outperform actively managed portfolios that incur higher fees and expenses.

Free financial planning isn’t always free.

It’s impossible to sell something and not be biased towards it. Many financial advisors offer financial planning services at no cost in order to sell investment or insurance products as a result of the plan recommendations. Be cautious if your financial advisor is offering a no-cost financial plan and follow the money trail to verify you are getting a comprehensive and unbiased perspective. It’s okay for professionals to get compensated for their work as long as that form of compensation is transparent and fully understood by the client.

Investment performance is overrated.

The majority of financial advisors are paid through selling commission-based investment products or as a percentage of assets under management (AUM).

As a result, the topic of investing often becomes the central focus of the client-advisor relationship. However, investing is only one aspect of a comprehensive financial plan. That is why you should focus on measuring your overall financial wellness rather than use investment performance as the sole benchmark of how you’re actually doing from a financial standpoint.

Most professional advisors underperform market averages over the long haul.

Good financial advisors actually help protect clients from the “behavior gap” or save clients from making emotional decisions. Still, as a result of commissions and fees most professional advisors underperform the market due to these fees and trading costs.

Employers aren’t too bad at offering low cost investment and insurance options.

If you are comparing various retirement savings vehicles or insurance options don’t forget to include employee benefits in your analysis. Many financial advisors neglect to examine these options because they cannot get paid on those recommendations. While there are many legitimate reasons to go outside of your employer’s benefit offerings, make sure you are looking at all potential options when implementing your financial plan.

More financial planners and employers are offering unbiased guidance. 

The best source of conflict-free financial guidance is through a professional who acts as a fiduciary. A growing number of financial advisors are becoming frustrated with the broken system they must operate within while also trying to help others. Many fee-only financial planners offer planning services on an hourly, as-needed basis while others provide ongoing services using a monthly subscription model or annual retainer. Access to Certified Financial Planner™ practitioners is also increasing through employers offering free or discounted financial planning and education services to employees as part of an employee benefit package.

Don't be afraid to ask tough questions no matter how high or low your confidence level about making financial decisions may actually be at the time.  

10 Questions to Ask a Financial Advisor

What important information is missing in your retirement plan? Whether you choose to work with a financial advisor or go the DIY route, take the time educate yourself and increase your own sense of financial wellness as you make those important financial goals become a reality.