Why Your Parents Financial Advisor May Not be the Best Choice for You…
In my first years outside of my parents house, my mechanic, dentist, and tax person were all people my parents sent me to. It was a safe and convenient choice for me when I was young. I still even use a few of the people they referred me to. And some I didn’t stay with as I aged, instead finding people that aligned more with my lifestyle, my demographic or my specific needs. Our parents and elders have loads more experience in the world than we do, so it’s natural to want to listen to them when it comes to who they recommend. But when it comes to your money, you should think twice before going along blindly.
Last month we had a prospective client come in to see if we could help them with some questions and ideas regarding their investments. They came into a large sum of cash at a young age, and their parents had an advisor they had worked with for years, so naturally this person went straight to him for guidance. At the time, they (let’s call them Pat) knew they needed to do something with the money, and trusted this advisor who had done “right” by their parents for many years. But here’s the thing, Pat is not their parents and their situation was nothing alike either. Pat’s parents' advisor had been around for decades, successfully, while advising, planning and investing for middle to upper class families in a medium sized town. He grew Pat’s fathers retirement accounts well enough for him to retire successfully. So, what bad could happen?
It turns out, a lot actually.
Now, I don’t believe this advisor intentionally set his client up out of malice, but he didn’t do the job that Pat or Pat’s money deserved. Pat ended up in annuities that are way too costly and lack too much control for someone at such a young age. This advisor also didn’t consider tax management, so Pat was paying outrageous amounts in taxes for their investments (we’re talking hundreds of thousands). It seemed like this guy was not planning or advising at all, simply investing the money and charging astronomical fees, which also came out of Pat’s money. Pat was essentially hemorrhaging money while thinking they were doing the “right” thing. This advisor seemed to be making a lot of money off of Pat and not doing a lot of work for it. Your money is yours to do what you want with, even if it came from somewhere unexpected. Even if it came from your parents. It’s your responsibility to ensure it is being used to make your goals come true in a way that suits you and doesn’t rip you off.
Let’s talk about why your parents advisor may not be the right fit for you, and what to look for in the right advisor for your money:
Their Goals May Not Align with Yours
One of the first things we do when potential clients sit down with us here at Oakview is talk about both their short and long-term goals. This is so important because everyone has different ideas about what their future looks like. It isn’t up to us, your advisors, to tell you what to do with your money. We are here to suggest how you can reach your specific goals. But not all advisors take that same approach. Some advisors may assume that their clients wish to purchase a home, complete with the white picket fence, and automatically build that into their clients plan, because that’s what they’re used to. But what if that client wants to rent because their main goal is to travel the world? That advisor's plan wouldn’t work for this particular client. Unfortunately, many of our parents' advisors maintain that traditional school of thought and may not include things into a plan that are crucial to their clients meeting personal goals. Be sure that if you sit down with an advisor who is referred to you by family or a friend of the family, they realize that your goals are individual to you, not your family members.
They May Practice Outdated Investment Strategies
When considering whether or not to hire your parents' financial advisor, it's important to keep in mind that the strategies they use may be outdated. Depending on how long your parents have been using their financial advisor, the strategies that were once beneficial may no longer be suitable for your own financial goals. Investment approaches that worked well in the past may no longer work well today due to changing markets and new technology.
What was once a conservative approach to investing may now be too conservative for you. Conversely, what was once considered aggressive investing may be too risky for you. It's important to know that the strategies and investments your parents have chosen may no longer be right for you. You will want someone who will consider modern investment strategies, such as diversification, automated investing, and financial planning services. By working with a financial advisor who is up-to-date on modern strategies, you can better ensure that your investments are tailored to your own needs and goals.
They May Not Enough Experience with Diversity
Many advisors have a long history of working with clients from a variety of backgrounds and incomes, giving them the knowledge and expertise to offer comprehensive advice. On the other hand, there are some advisors who may not have the same level of understanding or experience, making it difficult for them to provide advice that will best serve their clients needs. If your mom or dads advisor has only a small amount of solutions for saving and growing your money, be alarmed. There should always be a cost effective solution to what you’re looking for when investing your money, and your advisor should be familiar with all of them. Also, when considering whether to hire your parents’ financial advisor, be sure to look into their qualifications and experience in the field. Ask questions about their background and specific areas of expertise, such as investments, retirement planning, estate planning, tax strategies, and debt management. Poor portfolio diversification can leave clients vulnerable to significant losses.
They Could Be Impartial
When it comes to making decisions about your financial future, impartiality is of the utmost importance. Your parents' financial advisor may be more likely to act in their best interests, rather than yours. They may feel an emotional attachment to them, or may even be related to them. While this could lead to an advisor who is highly dedicated to providing excellent service, it also means that your parent’s financial interests could be prioritized over yours.
It is important to make sure that your parents’ financial advisor will put your needs and goals first, and not be influenced by familial ties. Ask questions such as, “What do you prioritize when it comes to investment strategy?” and “Do you have any connections with my parents?” to ensure that they will remain impartial in their advice and dealings. Ultimately, if you feel that they may not be impartial, it may be best to look for another financial advisor who can provide unbiased advice.
The advisor that our client “Pat”’s family suggested they use, ultimately didn’t harm their money. Pat still has plenty of it and could afford all of those fees and taxes they were paying previously. But without anyone watching the money or making strategic moves with it, not only would Pat have continued to pay exorbitant amounts in fees, but the money had the potential to run out sooner rather than later. The solutions offered to Pat originally were solutions that worked back in the 80’s & 90’s, but so much has changed in the world and there are so many more ways to invest your money now. Investment moves that worked for our parents back in 2005 won’t be what works best now, and you need an advisor who understands that. Basically, if you do decide that your parents advisor is who you wish to work with, do your best to ensure you’re doing so for the right reasons, and make sure that they understand that they are working for YOU, with YOUR money, and they agree to work with you separately from your family.
At the end of the day, your loved ones are only trying to help you by referring someone they use or know. They may not understand your reasons for wanting to switch to an advisor more suited for you, but you can always remind them that theirs was the generation who thought Beanie Babies was the next big investment opportunity in the 90’s.
- Sylvia McCormick Burns (Co-founder Oakview Wealth Solutions)