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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{ 11 comments… read them below or add one }

Jason @ MyMoneyMinute March 5, 2010 at 8:49 am

These are the exact reasons that I’m wary of seeking out a financial advisor. I wouldn’t mind paying a professional for an hour or two of their time to bounce some ideas off of them, or to roll over a 401k account or something. But honestly, so much more information is available online these days on investing and personal finance, I wonder how relevant they are. To me it’s like a real estate agent – there are a few rock stars out there, but it’s hard to find the rock stars. I’m hesitant to put my trust into someone with all my money without knowing what’s going on, especially when they have their own interest in selling particular financial products that are best for THEM, not for you.

Having said that, I would like to use a financial advisor at some point, but right now our financial plan is pretty simple. Pay off student loans.

Ugh. I feel like I need to find a professional coordinator to match me with a financial advisor! LOL.
.-= Jason @ MyMoneyMinute´s last blog ..Wine On A Budget: Oak Creek =-.

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PF Journey March 5, 2010 at 9:00 am

Jason,

You may have stumbled onto a business plan…”professional personal finance broker” — match people with advisors….haha!

I think a financial advisor can be a good move for someone starting out and looking for a gameplan, or someone with complex financial situations. But the client needs to be educated.

Reply

dustin evenson March 5, 2010 at 1:20 pm

Instead of dealing with “commission” based advisors look into “for fee only” advisors and coaches. And definitely say no to whole life insurance. This is why I can’t get a job as a financial advisor I would refuse to sell whole life.

Reply

PF Journey March 7, 2010 at 3:56 pm

Dustin,

I would probably go “fee only” in the future. But then again, knowing what I do now, I would not allow them to persuade me into a loaded investment plan.

Reply

SimplyForties March 7, 2010 at 6:35 pm

Excellent article, thanks for sharing!
.-= SimplyForties´s last blog ..Spaghetti with Swiss Chard and Pecorino Cheese =-.

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PF Journey March 7, 2010 at 10:07 pm

No problem! I enjoyed the last blog carnival you hosted too

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Saving Money Today March 9, 2010 at 8:01 am

I haven’t gone to a financial advisor but it’s something we really should do. And I do agree with finding someone who charges a straight fee. I’m very suspicious of anyone who makes money by commission because there is a clear conflict of interest.
.-= Saving Money Today´s last blog ..Taking the Yakezie Challenge =-.

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youngandthrifty March 12, 2010 at 9:06 pm

Ugh! That sounds pretty terrible! 50% commission? That is really steep. I’m curious to know which company it is now..

Good lesson learned for both of us… =)
.-= youngandthrifty´s last blog ..The “Other” Investments…and the Three Financial Advisers =-.

Reply

PF Journey March 12, 2010 at 11:10 pm

@Youngandthrifty,

I don’t want to publish the name of the company. If anyone is really curious, there is enough information in this article that you can pull from Google searches.

Reply

myfinancialobjectives March 15, 2010 at 7:06 pm

I’m my own financial advisor :) So far it’s going great!
.-= myfinancialobjectives´s last blog ..The Ultimate Motivator: Compounding Interest =-.

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Bonita Caez June 1, 2012 at 11:29 am

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