Before we begin, let me remind everyone that I am a financial coach [2]. There is a distinct difference between the qualifications of a financial coach, a financial advisor, and a financial planner. I have provided some reliable references to help you understand the differences [2,3,4]. As a financial coach, my platform is advancing financial literacy. I charge for the education, experience, and practice that I have put into building my skillset and the effort that I pour into catering a customized learning experience for each of my clients. I am not a licensed financial professional, so I do not sell advice, but rather offer information and education. Depending on your source, however, not all the information you receive will be good for your specific situation. Before you start your search for a financial professional, take an assessment of what type of help you need. Then consider what red flags may appear when it is time to choose a financial professional to help you. Here are some common red flags that may indicate that the professional may not be a good fit for your individual financial needs:
1. They do not have a strong track record of providing quality advice
2. They do not have a good understanding of your specific financial situation
3. They do not have good communication skills
4. They do not have a good understanding of personal finance concepts
5. They may be overpriced
1. They do not have a strong track record of providing quality advice
Hiring a professional is always a gamble in any arena, so conducting background research and applying discernment is important for getting the best services. This is especially true with getting help in the financial field. There are some reliable sources available for understanding how to vet a financial advisor. With some abstraction, this information can apply to any professional in the financial services industry [1,5]. Being careful to filter potential professionals for competence, compensation, credentials, and comfort should be your guiding principle. Look for reviews, published content, and comments on blogs and social media to understand their philosophy and approach.
2. They do not have a good understanding of your specific financial situation
Making recommendations without learning about you first is a major red flag. The world of personal finance is both simple and complex. There are straightforward mathematical principles that will always apply. However, the field of financial psychology has shown us that each person's relationship with their finances is unique. Dynamics like this cause information that is generally good to not be suitable for your specific situation. Part of seeking professional guidance is to have someone experienced help you filter through what makes sense for you. Therefore, the financial professional must be sure to understand your situation and motivations to help you take the most optimized approach for you.
3. They do not have good communication skills
Advice is not good if it is not communicated well. Communication skills will help your financial professional to convey their ideas clearly in writing or verbally. This is critical when you are paying for guidance. Poor communication skills lead to misunderstandings, miseducation, and disappointment. When seeking a financial professional, be sure to seek out one that will educate you on the process. They should have the ability to translate complex concepts and make the pros and cons of the decision that you are making explicitly clear. Do not make financial moves that you do not understand.
4. They do not have a good understanding of personal finance concepts
If the financial professional is not up to date on the latest financial trends, it may be a red flag that they do not have a good understanding of the current market. Additionally, if the financial professional does not have experience with different types of investments, this may be a red flag that they are not the best fit for your needs. The financial market is constantly evolving. Financial advice become outdated based on the times. And some information is only suitable for a specific demographic. Having a financial professional that is aware of these changes is key. Ask for clarity on current trends and how they may affect your current situation.
5. They may be overpriced
If the financial professional charges more than what you feel is reasonable, it may be a red flag that they are not worth your time and money. Many people need more of a starting point than an ongoing service when they begin their journey. There is a lot to be said for putting in the work to understand how your financial system works for you before allowing someone else to take control of it. For those who want the guidance of an expert, an upfront fee for a specific product may be the best investment. This can come in the form of a workshop, a guided program, or a one-time detailed plan. Getting the initial education or the one-time plan and implementing it yourself can be a better use of your money than securing a full-time advisor. You always have the option of updating the plan due or seeking additional education when life dictates.
Seeking professional financial support is a personal decision. There are a lot of resources available for acquiring information and implementing financial plans. However, there is great value in enlisting the services of someone with training and experience with the intricacies of the financial markets. Regardless of if you choose a professional to help you or not, it is important to continue to grow your financial literacy so that the help you acquire is more of a partnership than a dictatorship. The professional is a guide, not the decision point. Every decision regarding your finances is your choice. Owning this leads to empowerment. Empowerment leads to wealth building.
You can continue to grow your financial literacy by visiting my blog at www.cfpisolutions.com/blog. What are some red flags that you have observed? Drop your tips in the chat.
References
Benz, Christine. “5 Questions to Ask a Financial Advisor.” Morningstar, Inc., October 5, 2022. https://www.morningstar.com/articles/819893/5-questions-to-ask-a-financial-advisor.
Daugherty, Greg. “What Is a Financial Coach?” Investopedia. Investopedia, July 8, 2022. https://www.investopedia.com/financial-coach-definition-5214208.
Majaski, Christina. “Financial Planner vs. Financial Advisor: What's the Difference?” Investopedia. Investopedia, May 11, 2022. https://www.investopedia.com/articles/personal-finance/040215/financial-advisor-vs-financial-planner.asp.
Medine, Taylor. “Financial Coach vs. Financial Advisor: What's the Difference?” Experian. Experian, September 2, 2022. https://www.experian.com/blogs/ask-experian/financial-coach-vs-financial-advisor/.
Rowling, Sheryl. “How to Choose a Financial Advisor.” Morningstar, Inc., July 28, 2022. https://www.morningstar.com/articles/1105058/how-to-choose-a-financial-advisor.
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