3 Ways to Protect Yourself From the Worst Financial Advice

3 Ways to Protect Yourself From the Worst Financial Advice
  • Opening Intro -

    More often than not we hear people complain in social media about how they messed up with a certain investment.

    In some extreme cases we have also witnessed a conspiracy involving pyramid schemes where innocent hardworking citizens lose all their lifetime savings on 'Bad Investments.

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What people don’t realize is that at one point in time, these people were advised to make these investments with a promise of getting huge profits. This advise usually comes from the so-called financial advisers.

That is why, before you accept any advice given to your by any financial adviser, you should know about 3 strong ways you can protect yourself from wrong advice from these financial advisers.

1. The Compensation Plan

The adviser should put in writing an official document highlighting all the fees and commissions that will be involved in this investment plan. If they recommend mutual funds then they will need to disclose whether these mutual funds contain charges that the advisers will receive in terms of commission. Normally, many financial advisers tend to leave this out as they don’t want to show how much they will earn when you take the investment plan they are recommending. Insist on transparency and everything should be open.

2. How Conflicted is Their Advice?

There is nothing worse than getting investment advice that ends up creating a conflict of interest between the parties involved. A financial adviser offering financial advice about a particular investment that makes him/her more money than the client is not ethical. This comes in the form of making investments that will cost you more in terms of fees, and a huge chunk of it goes to the adviser. The financial adviser might not receive the lions share of the fee, but other incentives in form of stock or a promise of the ‘insider information’ upon signing a new client constitutes this conflict.

The adviser should recommend a particular investment in your best interest and not their own selfish gain.

This has happened before with pyramid schemes where one is promised a ‘cut’ on the fee of a new client they refer.

3. The Qualification of The Adviser

Fiduciary standard is vital for any financial adviser. To be on the safe side, you’ll need to associate your investment needs with advisers who abide by fiduciary standards. These are mainly certified financial planners with a strong background in their line of work, certified public accountants who have experience in their field of work and to some extent, chartered financial analysts and registered investment advisers. Unfortunately, most ‘Financial Advisers’ are not certified and they usually undertake the role of a broker rather than a financial adviser. In doing this, most of their advice tends to benefit them more than they benefit you.

When you decide to take financial advice from someone in relation to investing, you are literally entrusting your hard earned money and future on the hands of someone else. That’s why you need to work with the best people who have your best interest in their heart.

Don’t be a victim of bad investment advise. Know who you are working with. Share this article with your friends and families to help them avoid the ‘hungry sharks’ who want to benefit at the client’s expense. Help them make the best choice while choosing their next financial adviser.

Money Management reference:

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Categories: Financial Planning

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