I’ve had three financial advisers in the short time that I’ve been investing. Each one was progressively better than the last one, but each one didn’t really accomplish what I had really wanted to do. Most Canadians probably fall into the same category I did when I first started to look for alternative ways to invest my money. I simply walked into the bank and asked for someone to assist me. A “financial adviser” would come up to me and start asking me questions. The adviser would then proceed to give me some options other than GICs and high interest savings accounts where I could put my money.
If I had known the things I know now, but back in the day. My current self would probably slap my past self and kick myself out of the chair at the bank immediately. If you haven’t seen the CBC Marketplace episode of “Show Me The Money“, you should really check it out. The fact is, many financial advisers at the bank are not knowledgeable. They have a title to their job as a “Financial Adviser”, but that’s as far as it goes. Their job title makes you comfortable enough to accept the advice that they know best of what to do with your money. In most cases, this turns out to be untrue.
From my experience, here are things that I’ve learned from the past:
1. Most advisers are salespeople
There is an obvious conflict of interest for a financial adviser because they want to make money from you, but their goal is to also maximize your potential return on investment. At the end of the day, I’m pretty sure I know what a free financial adviser will be trying to do and usually it doesn’t end well for me.
2. You don’t get all the options
Since advisers are out for their own best interests, you’ll rarely if ever, get to know all the possible investment options that are available to you. Want stocks? Buy the banks’ mutual funds. Want no risk? Buy the banks’ GIC offerings. All the offerings you are given are generally products from their own financial institutions. Most likely because advisers are biased toward their own financial institutions.
3. Advisers sell products, not a strategy
An adviser has never given me advice on how to build a proper investment portfolio. I had to learn that myself. Advisers are great at offering products where I can invest my money, but never do they teach me about diversification, balancing my portfolio or dollar cost averaging. All of which are very important to building and maintaining a successful investment portfolio.
4. Financial advisers make great presentations
Fancy graphs, colourful pictures and 5 star ratings. It’s as if the Siskel and Ebert of the finance world reviewed all of their mutual funds they showed me and convinced me I had to buy them all. Even if I didn’t want to buy something, I always got a great feeling coming out of a meeting. Just like my previous point, financial advisers are great salespeople and they have great material to catch your attention.
5. They don’t understand risk
When risk comes into play, the default answer for low risk is always a GIC or money market fund. For high risk it’s always a mutual fund play. The fact is, risk is different depending on whether you are investing short term or long term. If I wanted a low risk, retirement plan strategy for 25 years and an advisor told me to just buy GICs, then I know they are full of it. With such a long term horizon, GICs would do nothing but eat away at my capital through inflation and taxes. Advisers come built-in with automatic, default answers. Hey sounds like Siri!
6. They tell you want you want to hear
You’re a customer after all. When does a financial adviser tell you you are stupid and should manage your finances better? Does an adviser ever tell you that you’re insane trying to day trade while gambling your savings? An adviser wants to make sure they gain your business. They won’t tell you the truth if they don’t think it will get you to become a customer. If you are looking for yes men, go ask your husbands.
As I learned more and more about personal finance and how to manage and building my own investment portfolio. I realized that my full potential was being held back by financial advisers. Though my last adviser was better than my previous two, he even acknowledged that with my extensive knowledge that I had gained from reading books and learning from mistakes, that it would better serve my own interests if I managed my own money rather than himself. Getting that endorsement made me much more confident that I could manage my own money.
It’s that same knowledge that I gained that I think can make everyone a master of their own money. It does take dedication, but who else is better to manage your own personal finance than yourself? Certainly it can’t be a financial adviser.