5 Lessons from My Encounter with a Financial Advisor

by Mike on March 5, 2010

Several years ago, when I was at the beginning of my professional career, I enlisted the help of a financial advisor at the recommendation of a co-worker. This particular company is nationwide and dedicated to helping those serving in the armed forces. At this point in my life, I knew very little about managing finances and thought having an advisor was a step in the right direction.

My co-worker set up the connection and my future financial advisor and I met for lunch. She was a friendly middle-aged woman who greeted me with a warm smile. We sat down at a local Mexican restaurant and had a nice conversation. I don’t remember everything we talked about…but it was hardly related to finances. She wanted to get to know me and allow me to get to know her. At the end of our lunch hour, she asked if I wanted to set up an appointment at her office to review financial documents and start the process.

Lesson #1: When selecting a financial advisor, make sure it is someone you are comfortable with. You are entering into a type of long term relationship with that person and will trust them with your intimate financial details.

Later that week we met at her office. I was introduced to the different advisors in the company. The atmosphere was clean and professional. My advisor asked me a simple question: What are your financial goals? I realized that I didn’t have any! We continued to talk and she helped me draft a plan.

Lesson #2: You need financial goals! If you don’t know where you are going, how will you know when you get there or if you are on the right track!

She crunched the numbers, and based on my age, salary, and spending patterns came up with a plan for me. She showed me the plan and offered to explain it to me as many times as it took, but it was all Greek to me! I remembered the bottom line, and that was all I cared about: follow this plan and you’ll reach $1 million in 30 years.

Lesson #3: Don’t be afraid to ask questions! Ask as long as it takes until you understand. Educate yourself…it’s your money!

She asked if I had any questions. The only question I had was how she got paid. She answered the question honestly, but again, because of my lack of understanding I didn’t press pass the bottom line….and that was that I don’t have to pay anything out of pocket. If I knew then, what I know now…I’m sure her answer surrounded commissions and loaded mutual funds.

In addition to investing, I was told whole life insurance was needed to insure my financial stability. The idea was to purchase it now while I’m young and healthy and the premium was low. Also, the insurance carried a cash value.

Lesson #4: Don’t buy insurance as an investment. There are much better investment vehicles. Buy insurance because you need to be insured!

The bottom line was I would send x dollars per month and my advisor would work her magic. The honest truth is I didn’t know where my money was going. Sure I received quarterly financial reports, but I didn’t know what they meant. I was naïve to think as long as I was investing, that I was OK!

I can say that I am blessed that my ignorance didn’t cost me more than it did. My investor was honest and did what she thought was best (even if I don’t agree with her investment strategies). If I had a dishonest advisor, they could have stolen money from under my nose!

Lesson #5: Generally speaking, any plan is better than no plan, but it is important that you have a basic understanding of any plan you are going to implement!

After a few years I ceased my investments with this particular company. Some of their practices became highly scrutinized such as there systematic investment plan: It functions like a bank account where you pay a monthly deposit. But it is actually a mutual fund. Agents receive a 50% commission and it has a clause that states it is irrevocable for 15 years. There are also better options for military such as the Thrift Savings Plan that are not mentioned. This actually led to a lawsuit and settlement. The company is back in business, but has that blemish on their record.

I purposely left off the name of the company and advisor. I’m not looking to taint their reputation…instead I want to stress the importance of doing your due diligence.

Have you ever worked with a financial advisor? What was your selection process? Share your story!

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