More Financial Secrets Advisors Do Not Want You to Know

4 min read
More Financial Secrets Advisors Do Not Want You To Know

We recently wrote about some of the aspects of hiring a financial advisor that may run contrary to your interests or goals. As we said there, most advisors genuinely do want to help you. On the other hand, there are things about the way the industry is structured that will give advisors incentives to steer you in extremely specific directions. Here are some more of them and how you can be aware of them.

Mixing Insurance and Investments is Tricky

Mixing Insurance And Investments Is Tricky

These are funds that combine life insurance policies and annuities and are given the innocent-sounding label of “hybrid” products. Their main goal is to provide long-term health care if the need arises. If you change your mind after buying one, you can usually get back some of the money you used to pay the premiums. (Not all of it, but at least some.) If you die, your beneficiary will receive a benefit.

A major drawback is that the policy likely pays an exceptionally low-interest rate. Financial advisor Damon Gonzalez explains, “They are like the ‘jack of all trades, but master of none’ of investments, not doing any one thing exceptionally well.” The costs may outweigh the benefits. It is a better strategy to keep insurance and investments separate, so each yields its maximum benefit. A well-managed Health Savings Account (HSA) is a much better method to plan for health needs down the road.

Watch Out for Quirky Deductibles

Deductibles are simple on the surface – you pay up to a certain amount, then insurance pays the remaining balance. However, all insurance is not created equal. As licensed insurance specialist Kevin Courtright with The General Auto Insurance says about car insurance, “Many people use deductibles for anything that happens without realizing that those things count as claims. Claims usually increase monthly rates, and they stay on your record for five years. Some policies are automatically counted if a claim limit is reached. Having a savings account dedicated to routine vehicle care is a sounder method.”

You Cannot Predict the Market

You Cannot Predict The Market

We covered this in the previous list. To summarize, the “beat the market” strategy carries great risk and a low success rate. SageOak Financial Financial Advisor Tyler Gray said, “People say, ‘Warren Buffet beats the market.’ The reason for that is that he does not invest in businesses, he buys them. That is quite different.”

Riding an Economic Growth Wave is Better

It is fairly common knowledge that there is risk in any investment. Most assume that high-risk always means high returns. That is not the case. Even professional brokers do not get rich from stock market trading. But it is exciting, something like gambling in Las Vegas, so people can get caught up in a sense of excitement.

But you do not want to invest your retirement money on the equivalent of financial service of a craps table. At OptiFour Integrated Wealth Management, Larry Solomon, CFP advises, “Investing is like any business venture – lower costs lead to greater success.” That includes management fees, but also risk factors.

You Keep Your Advisor Employed

You Keep Your Advisor Employed

You are the source of your advisor’s income. They are out to make money just like you are in your profession. The advice can be good, and the motives can be altruistic, but everyone has the same goal. Having a strong partnership that includes loyalty is important. You need the advice of your advisor, but you also have power.

Ask How They Get Paid

Again, you want a relationship with loyalty and trust. You should know if they are paid through fees or commissions. Clark & Company Wealth Management President Craig S. Clark, CFP says, “Investments like mutual funds and annuities have no flexibility on price. But advisory (fee-based) accounts usually do. Managing $1 million or $250,000 cost the advisor about the same, so you may get a better fee by negotiating.”

Your Best Interests May Differ

Watch Out For Quirky Deductibles

Advisors with a broker’s license can get commissions for selling products from partnered companies. The commission is usually a fixed amount. This could influence a broker to steer you to either good or bad investments because the broker gets a commission either way.

fiduciary has a legal obligation to ensure that all work is done is in your best interest. Any possible conflict of interest must be openly disclosed. So using a fiduciary is a good strategy.

Keep Track of Inflation’s Effect on Your Savings

Inflation, usually measured through the Consumer Price Index (CPI), can do some bad things to your savings accounts. Savings and checking accounts currently average an interest rate of 0.06%. Meanwhile, the CPI is about 0.5%. That math is not particularly good. There are plenty of great investment moves to help mitigate this potential loss, so you don’t need to take your money out of the bank and bury it in the backyard.

Stockbrokers are Paid When You Trade

Riding An Economic Growth Wave Is Better

Keep in mind that brokers are paid on commission, so the more trades you make, the more money they make. The commissions are charged with each trade. Keep this in mind if your advisor steers you toward a larger volume of trades.

You Get What You Do Not Pay For

Larry Solomon says, “When it comes to financial advice and investing, the opposite of ‘you get what you pay for’ is what takes place. Since fees are the only thing we can predict and control in investing. So it behooves you to focus on what you can control and seek to decrease these fees whenever you can. You get to keep what you do not pay for.” Use smart money moves to maximize the money you get to keep.

Feeling a bit overwhelmed? If so, check out the 40 Ways to Seriously Boost Your Savings After 40. Knowledge is power.