We seem to be inundated with unsolicited and, sometimes bias, advice. This extends into my own area of professional practice. It is concerning in the days of fake news and alternative facts, to truly know when you are getting pertinent and qualified financial advice for your own personal situation.
There are a lot of great financial advisors out there. You just need to do your own due diligence to find the right one for you. Here’s some candid advice on what to consider. This is my own personal opinion. Take it for what it is and how it may assist, or not assist you, in your own situation.
Take advice with a grain of salt
All advice has to be taken with a grain of salt regardless of the source. A lot of people pass themselves off as experts, when in truth there are no experts – only practitioners. No where is this more true than in the financial realm. There are dozens, maybe hundreds, of subtopics in the area of personal finance, and there are multiple opinions about every single one of them. Complicating this is the fact that no two people have the exact same financial situation.
You should consider financial advice, and use the knowledge you gain from it as a basis to help you make decisions about your financial life. But you should never mindlessly take action based on someone’s advice, least of which that of a so-called financial expert.
They don’t know you
It’s one thing to take financial advice from a person who has intimate knowledge of your situation. It’s quite another to take it from someone who’s pontificating to a mass audience and has absolutely no knowledge of your situation whatsoever.
Though you may be impressed, or even comforted by someone’s public delivery, they know absolutely nothing about you. If they did, a single detail in your financial situation – or even one merely related to it – could change her recommendations completely.
Most public advice is very general
There’s a saying that goes, If it’s true it isn’t new, and if it’s new it isn’t true,“ and so it is with financial advice experts. 90% of the advice spread to the masses coming from an expert in any field is generic – it’s common in the field, and you can get it anywhere. What makes the advice unique is the personal spin added by the individual. That’s more about the personality of the expert than it is about the depth and quality of the advice itself.
Advice is usually targeted to a certain part of the population. Most of it is marketed that way. If you find yourself agreeing with all or even most of a select financial expert, you could very well be in this group. And if you are, you need to spend a lot more time working on getting information from other sources. No one can magically turn you into a financial expert, not even in regard to your own finances. That can only happen if you commit to making it real in your life.
Your own financial situation is unique
When someone addresses someone else’s problem, it may be similar to yours, but it’s never exactly like yours. A change in a single detail or two could invalidate her advice in your case.
Take, for example, a decision on investing in the stock market. Someone can put out the general advice that everyone should be in the stock market, but what if you have an unstable income, an high level of debt, and a lot of mouths to feed at home?
Sure, it might be recommended for everyone to be in the stock market, but in your case, that advice can be all wrong. Advice can have you scrimping and saving to invest money in the stock market, when in reality you should be building up your emergency fund instead.
There are always commercial biases
When someone promotes one of their books or programs, or endorses a third party product, there’s money on the line – as in money to them. That should raise a red flag.
Some public financial experts are a brand unto themselves. They are a popularly recognized figure and well heeded by her legions of fans. That creates monetization opportunities and you know that they’re taking advantage of those. Virtually everyone in her position does.
For example, they can recommend a debt consolidation services or an airline rewards credit card, but they choose to endorse a certain card because they are paying you a fee to do so. But that doesn’t mean that the product or service that’s being advanced is really in your best interests.
There’s too much emphasis on the little things
I remember watching a commonly used programs when someone discussed the Starbucks factor. The point had to be well taken: by stopping at Starbucks every morning to buy a $5 beverage, you are spending at least $1,500 per year that you don’t need to spend. You can save that money simply by making your own coffee at home, and preparing a cup or large container to bring with you to work.
The problem with that kind of advice is that you can spend a lot of time and effort looking to cut small expenses like store bought beverages, and not come up with serious money to save when you’re done. In addition, this may not be great advice for people who are struggling with financial survival. Many people in that situation have already cut the small expenses and are still sinking.
For a person who is in that situation, the best advice might be to take on major expenses, like housing or your car, and trading down on both. Many people who are in financial difficulty are there because they can barely afford the biggest expenses in their lives. You can’t fix that problem by cutting out the store bought beverages.
Everyone shouldn’t invest in stocks
Some financial experts enthusiastically recommends investing in the stock market to anyone who will listen. This is standard issue, one-size-fits-all advice, and maybe not even advice” in the truest sense. Common sense should tell a “financial expert” that no, not everyone should invest in the stock market.
This kind of advice is even more questionable after a powerful run up of stock prices. Do they ever tell anyone to lower your exposure to stocks? Do they ever tell anyone it’s time to get out completely? Not always. The absence of that kind of recommendation makes public stock advice a little too standard – it’s what all the other self-styled experts are saying, too. And it seems that if you’re providing advice to a large number of people who are struggling with finances in general, urging caution or recommending closing out positions in a record market makes objective sense.
Not everyone will get rich in the stock market
We should always be concerned about the intentions of any self-styled financial advisor who sounds even remotely like a get-rich-quick hustler. Since there’s plenty of cheerleading coming from Bay Street and the financial media, it seems that a financial expert needs to be the person advising caution. The fact that some don’t should make us…suspicious.
While it’s true, statistically speaking, that the stock market has returned an average in the range of 8-11% per year since 1926 (depending on the source), it can vary widely from one year to another. It is also a fact that there have been entire decades that left investors financially devastated.
People who are in tight financial situations don’t need to be loading up in the stock market, as they have more immediate concerns. And even hinting at the possibility that they may become rich by investing in stocks is more than a little disingenuous.
Some don’t follow their own advice
You always have to be careful of any expert who operates under the premise of “do as I say, not as I do”. When a financial expert is doling out advice that others are relying on, the hypocrisy is not just glaring. It’s intolerable.
Sometimes they’re wrong
Take 2008, for example. It was a bad year in the stock market. But if we’re going to trust the advice of experts, it’s never more important than when the sky is falling. Anyone of us can be wrong in calling the stock market, but this episode and others are proof that the near-religious faith people place in gurus is never well advised.
Advice may not fit your financial situation
The more successful a person becomes, the less he or she can relate to the plight of everyday people. It’s just human nature. Life looks a lot different when you have that kind of money. It simply gives you a different perspective, and that affects your ability to process what’s happening from an emotional standpoint.
When a financial expert is a multi-millionaire, it can be hard to appreciate the role that fear plays in a person’s decisions. For example, if you have $10,000 to your name, the consequences of investing the money and getting it wrong can be disastrous. But from some experts, investing money aggressively when you have a small pile of it can be seen as the only way to move forward. Perspective changes everything.
They’re an entertainer
There are people who are very good at what they do, and no one in the general public as any idea who they are. There are other people who are very good at what they do – or maybe not so good – but everyone knows who they are. That’s because they are experts at public presentation. Some people just know how to work a room. Their adrenaline surges when they are holding a microphone and speaking before a large group. They thrive on attention. They are the people who we will know all about. And for that reason, they will be anointed as experts.
Anyone who reaches that level gets there primarily because they have value as an entertainer. They’re not just informing; they’re entertaining, and that’s why you know who they are. The problem with this mix is that you can never be certain when the informing ends, and the entertainment begins. The really good experts know how to blend the two seamlessly.
Because nobody’s perfect
Most of us desperately want to believe that there are people who are “in the know,” people we can turn to and know with absolute certainty that we’ll get the right answers. It makes us feel good, even if deep down inside, we know it’s not entirely true.
But there are not perfect. We can know this because they’re human.No matter how much we want to believe in anyone, the reality is that doctors lose patients, lawyers lose cases, referees blow calls, and high-priced star athletes drop passes. Never assume a piece of advice to be right because it came from the lips of a financial expert.
You need to think for yourself
When we were kids, we relied on the adults around us to guide us through life. As we grew up, we began to realize that we have to do for ourselves what we once relied on others for. And so it is – or should be – especially when it comes to finances.
While it’s fine to rely on input from experts, there is no substitute for learning personal finance on your own. Only when you have some grasp of what you need to do, can you even apply the advice and recommendations that you’re given by others.
And that’s important. After all, any losses that you encounter will come out of your financial resources, not the experts. That last piece of advice is Keeping Life Current.