How to avoid bad financial advice
Investment advice alone is worthless if it cannot be verified. President Ronald Reagan made famous the phrase “Trust, but verify”. He used this old Russian proverb when discussing U.S. relations with the Soviet Union. The foundation of trust is built on evaluating and assessing someone’s ability, integrity, and honesty. Trust is developed in relationships over time when people do what they say, honor their promises, act in a fully transparent manner, and maintain open communications. At all times the bonds of trust should be verified.
When it comes to working with a financial advisor, most people fall short of trusting and verifying. They fall into the trap of judging based solely on a financial advisors’ likability. On the other hand, in the medical industry, we do not place trust in doctors based solely on likability. The bigger the medical decision the more common it is to seek a second opinion and base our decision based on ability, integrity, and honesty. We will often take the time to verify any essential new information.
We believe that the best way for you to seek peace of mind and avoid bad financial advice, is to base your financial decisions just as you would major medical decisions.
Ability – You should work with a financial advisor that has accumulated the financial expertise to provide accurate financial advice. Ability can be determined by whether or not someone has passed exams and successfully achieved appropriate designations. Designations can help us to judge an advisor’s competency and knowledge to provide the correct financial advice. We would never trust a doctor that didn’t have an M.D. after their name. In the financial industry, the designations that can help you to determine a higher level of ability are: Certified Financial Planner™ and Chartered Financial Analyst.
Integrity – Does your financial advisor owe you a fiduciary duty? The Investment Act of 1940 requires us, by law, to act in the best interest of our clients, and we must place our clients interests ahead of our own at all times. We must provide advice and investment recommendations that are viewed as being in the best interest of the client. On the other hand, brokers are generally not considered fiduciaries because their advice is merely incidental to the sale of their products. They follow a suitability doctrine which requires them to recommend you the best products. Would you trust a doctor who was mired in conflicts of interest and made decisions based on how much money they would make off of you? Doctors act with integrity because they do not sell products and will select the medicine that is best for you. Financial advice as well, can be trusted more if it is given with your best interest in mind.
Honesty – The hallmarks of an honest financial advisor are open communications and full transparency. The best financial advisors fully disclose potential conflicts and review investment results and communicate whether or not you are on track to meet your financial goals. In addition, they have established a track-record of being trustworthy. Judging on honesty tends to be more based on ones personal decision, however, you can verify honesty through evaluating your financial advisors personal track-record and their ability to maintain relationships. We will trust a doctor’s honesty by the success rate of their cases and ability to connect with people through educating them on the potential outcomes. The same could be said for evaluating a good financial advisor.
Our mission is to preserve and grow our clients’ wealth. We do this through putting our clients first. We follow a fiduciary duty and build trust through our ability, integrity, and honesty. We believe that we can avoid giving bad financial advice because we have spent over half of our life acquiring the knowledge and experience to provide you the most appropriate financial advice.
Please feel free to review my work experience, qualifications, and full bio here. I’m also open to any of your questions on my investment process and my investment philosophy to help give you the financial confidence to achieve your goals.
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Advisory services offered through Constant Guidance Financial LLC, a registered investment adviser.
