As financial advisors, we are privy to a great deal of inside information, industry secrets, and promotional gimmicks within the world of financial planning. Our regular attendance at various marketing workshops, association conferences, and other soirées gives us special insight into the sacred myths and half-truths that many financial advisors continue to peddle to their less-informed clients.

As twenty-somethings ourselves, we get a special kick out of revealing the dirty tricks and tactics of the old financial establishment. It's a new day, and the time has come to revive the honesty and integrity that this profession deserves and demands.

We hope you enjoy our observations and opinions as they relate to the darker side of the financial planning industry. Our intent is to educate and to assist you in making informed decisions concerning the fulfillment of your financial future.

Without further ado, here are Five Things Your Financial Advisor Knows (...But Will Never Tell You):



1. "You can repair your own credit history for $50 - and most of that is postage."

Young people generally prefer the quick & easy solution. Whether it’s weight loss, dating, or credit repair, there's always a segment of the market that will pay for instant gratification. Many so-called “credit repair specialists” know this, and they have no problem lifting the heavy load of bad credit (along with several c-notes from your wallet) in order to correct erroneous information asap. The problem with this solution, aside from its tremendous price tag, is that it often results in the credit specialist advising you to halt all payments your creditors--and in some cases, threaten them with your imminent bankruptcy. With creditors desperate to salvage some form of repayment, your “credit specialist” then instructs you to negotiate settlements with each creditor in order to repay debts on your terms (i.e. for pennies on the dollar.) The problem with this “solution” is that, even though you may no longer owe any creditors, your credit file will be destroyed from all of the delinquencies and non-payments. Sure, you won the battle but you’ve lost the credit-repair war.

A much better solution is for you to first understand your rights as a borrower. You should know that creditors have no right to hassle, threaten, or intimidate you in any way. Also understand that it is the creditor's burden to prove that you legally owe them. And this burden is more than a verbal “You owe us money” over the phone. The creditor must produce for you the original credit agreement containing the terms as well as your handwritten signature on it. Additionally, they must provide a record of the charges for which they are trying to collect. Again, all of this information should be in writing, and if a creditor is unable to produce these documents, then by law they must remove the information from your credit report. If they give you any flak, then you have Uncle Sam’s Federal Trade Commission on your side. Creditors are weary of the Feds (and their stiff penalties), so your complaints to the FTC tend to miraculously find resolutions.

Our ongoing experience with clients and credit repair has shown that most clients really only need a post office (to mail certified letters to creditors, collectors, and credit bureaus), time, and patience. Because the truth is, credit repair is a slow, gradual process which can take anywhere from 2 to 6 months, and the prudent consumer shouldn't even attempt to make repairing a damaged credit history “quick & easy”.

2. "The title 'Financial Advisor' doesn't necessarily mean that I have any formal education, licenses, certification, ethical code, or domain knowledge. In fact, I could be anybody from off the street."

The government has not yet established any legal requirements which must be met in order to use the title of Financial Advisor or Financial Planner. In fact, it is estimated that there are more than 200,000 personal financial advisors working in the United States today.

It is vital, as a client, to thoroughly research the credentials and background of your potential advisor. Ask questions about his/her educational background, work experience, special coursework, etc. Look for specific designations such as CERTIFIED FINANCIAL PLANNER™, Chartered Financial Analyst®, and Personal Financial Specialist. These various credentials illustrate a planner’s determination and devotion to the field as he/she has invested the time and energy into rising above the "general planner" fray. Moreover, each of these designations signifies a moral and ethical code of conduct that these practitioners have promised to abide by. Deviating from this code can result in severe professional sanctions and penalties to the advisor.

Also, don't hesitate to ask a potential planner for his/her personal references. A good planner will gladly provide you with the contact information of satisfied clients. After all, building and maintaining positive relationships is what financial planning is truly about.

3. "Investing is not the sole purpose of Financial Planning...in fact, it's not even in the top five."

Many clients confuse the phrase “Financial Planning” with “Investing”, but the two terms are not synonymous. In fact, investing doesn’t really enter the picture until many other milestones have been reached including: understanding cash flow, selecting appropriate checking & savings accounts, eliminating bad debt, establishing an emergency fund, and maintaining proper financial records.

Many clients are taken back to learn that a sound financial plan is holistic, and it encompasses every component of personal financial including: insurance, estate planning, debt management, budgeting, and record keeping.

4. "I am not ethically or legally required to act in YOUR best interest."

Unlike physicians, lawyers, and CPAs, who are bound to act in an ethical manner, financial advisors must not make any such promises to clients. The good news, however, is that many advisors have taken it upon themselves to proactively join organizations which promote the highest standards of professional conduct. Along with those listed above, NAPFA-registered advisors adhere to some of the highest, most consumer-friendly principles of any organization in existence. Their new Focus on Fiduciary campaign is rapidly raising awareness--and raising the bar--on planner/client relationships.

Some of you may be wondering why an advisor would not expressly act in your best interest at all times? The answer, of course, is money.

Most financial advisors are not compensated the way many consumers think. In fact, an advisor's personal motives often conflict with what’s best for his/her client. Commission & fee-based planners often earn a significant percentage of their paycheck from selling loaded mutual funds, annuities, and insurance products. These products generate the largest kickback (i.e. commission) for the advisor. But as everyone reading this blog already knows, the average consumer can beat the pants off of 95% of mutual funds by simply constructing a Lazy Portfolio consisting of no-load, low-fee Vanguard index funds.

On the other hand, Fee-Only® advisors do not have this built-in conflict of interest. Similar to your family accountant or lawyer, many Fee-Only® financial advisors now charge by the hour (or by the project) with no special commissions for recommending certain products to the client.

5. "Because you're young and largely uneducated about your finances, I can easily take advantage of you."

It’s no secret that the financial planning industry has some bad apples, who seek nothing more than to defraud and deceive their clients. In oder to counter act this unfortunate truth, we are fierce advocates of consumer education. An informed client will ask informed questions...and these informed questions result in the creation of more meaningful financial goals.

A financial advisor is just that--an advisor, and we can only work with what we’re given. Any successful professional relationship is founded upon honesty, integrity and communication, and with the absence of any one of these key elements, the relationship quickly breaks down.

Potential clients sometimes say to me, “I don’t know anything about money.” My first thought often is to postpone taking that client on, and then simply referring him/her to some of my favorite personal finance books at the local library. In my opinion, this client cannot fully benefit from the advice that I have to give because he/she is not yet able to communicate with me using the basic language of personal finance.

Make no mistake, I don’t expect every client to wax poetic on Warren Buffet’s witticisms or to be able to explain the FOMC policy as it relates to national GDP, but it is necessary to understand the fundamental concepts of money management. Look at it this way...you wouldn’t spend hundreds of dollars on a trip to Costa Rica without first brushing up on a little Español, would you? Por supuesto que no!