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We all recognize the wisdom of avoiding any discussion of politics and religion at the family dinner table. Some of us prefer to keep certain things private, while others may be more open to sharing without the necessary prompting. However, whenever people get together, there is always that person who starts giving unsolicited financial advice and even an investment tip, delivered in a soft voice and insists on referring you to their advisor.
It is almost impossible to refrain from getting bored in a financial discussion when we are bombarded with various and often conflicting prognoses about the prospects of our economy and the volatile stock market. Worry is not too far from reason when we feel the burden of making sound financial decisions to protect and optimize our wealth potential. So, in the end, a referral to a financial advisor, solicited or otherwise, may not be so unreasonable, especially if it comes from someone close to you.
In fact, this is how most people begin their advisor search, a referral from their aunt, uncle, or favorite accountant. However, should you trust your life savings to another person based simply on a suggestion?
We are inclined to trust those around the proverbial dinner table. Still, even if the experience with their financial advisor was successful, what assurance do you have that the same advisor will give you similar results or that your uncle even completed any significant due diligence on his advisor?
According to a survey of the National Council of Financial Educators last year, mismanagement of personal finances costs about 254 million adults in the United States, a total of more than $ 352 billion a year. The importance of gaining the financial intelligence needed to build wealth has never been more critical if we are to reduce our growing dependence on the country’s social and welfare programs, which are already at a tipping point. breaking up The importance and benefits of choosing the right financial advisor for guidance cannot be understated. Perhaps choosing a financial advisor based on “gut calls” built around a family recommendation and an anecdotal credibility check should not replace the need for data-driven, evidence-based due diligence.
Choosing a financial advisor can be quite tricky, considering that the US Labor Office estimates that there are more than 350,000 professionals who call themselves financial advisors in the country, not to mention another 300,000 who they work for broker-dealers and give financial advice under a large number. of different professional terms. Compounding this confusion, consultants accompany the designations after their names with unfamiliar acronyms only to exacerbate the consumer’s challenge to find clarity and familiarity.
Additionally, not all information you obtain about a financial advisor is accurate, up-to-date or complete. While the Financial Industry Regulatory Authority, a self-regulatory organization, and the US Securities and Exchange Commission do their part to introduce fairness and transparency, much more needs to be done. Too many bad actors are still navigating regulatory and industry loopholes to jeopardize the financial security of many vulnerable consumers.
While looking for and trusting someone with your wealth can seem very daunting, in light of current challenges, the benefits of having the right financial planning team dramatically outweigh the negatives. According to a recent study by Vanguard, working with a financial advisor can potentially increase your income by 3% each year. So perform your due diligence on consultant candidates, and get smart about critical thinking through the mountains of information available on the market.
As you gather with friends and family this holiday season, share the warmth and laughter and reflect on the virtues of hard work and planning. Choosing the right financial advisor can be your most important financial decision.
Steven Park is principal and executive director of Alexandria Capital LLC, based in New York. A veteran of over 30 years in the financial services sector, he serves as a senior advisor and board member to start-ups, entrepreneurs and business builders.