The financial industry would love you to make money from the advice it provides and the products it sells, but that’s not how it measures success.
Success is when revenues and profits rise. Happy, well-served customers certainly help drive strong financial results, but never make the mistake of thinking that you and your needs automatically come first in your relationship with banks and investment firms.
Of all the Universal Truths about money that Investor Education Fund is presenting, the one that’s least commonsensical has to be this: care more about your money than anyone else does. Advisors are not bound by an ethical code to make client needs paramount, and some are mainly interested in selling products rather than helping you achieve your financial goals.
Now, don’t overreact. You need not become an instant expert on all financial matters to protect yourself from rip-offs, and you don’t have to make every relationship with financial industry people adversarial. However, you do have to get your head in the game as far as your financial dealings go. Ask lots of questions about what you’re being sold and why, and make sure you understand the answers. Financial industry people who make you feel bad about seeking more information are the ones you have to worry about.
Here are some examples of how the financial industry’s interests and yours may not converge:
- The mutual funds your investment advisor suggests you buy might have been chosen more because of the fees and commissions they generate than what’s best for your investing needs.
- The maximum mortgage amount you’ve been told you qualify for has been calculated in terms of how much you can borrow without being a default risk to the bank, not on the basis of what you can realistically afford while meeting all your other financial obligations.
- The amount of life insurance you’ve been advised to buy may be based on projections that just happen to help agents make big commissions, rather than on a balance of what you need versus what you can afford to pay in premiums.
Demonstrate that you care about your money not only by asking questions of anyone providing financial advice or selling products, but also by doing your own research. GetSmarterAboutMoney.ca has one of many online resources that can help you learn more about topics like mutual funds, mortgage affordability and life insurance. Think of your financial services provider and yourself as a team that collaborates to produce good results. Passively letting it all wash over you sends the message that you don’t really care about your money.
How involved are you in making financial decisions?
It all boils down to: they’d like you to make money (using their advice), but they’d love for them to make money using you.
Dan, that’s about the size of it. Don’t assume someone offering advice in the financial biz is working in your best interests. Ask questions and never let anyone intimidate your into shutting up.