How to tell good financial advice from bad
Being in the advice business for 20 years, we’ve learnt a lot about what motivates people to seek good advice, and how much bad advice is out there. If ‘bad’ seems like a harsh characterisation, let me be more generous and call it incomplete, inappropriate or inaccurate.
As experts in delivering holistic financial advice tailored for each individual and designed to help clients achieve their financial goals, here’s our top five tips for how to tell good advice from bad.
1. Question both the source and the context
The rise of social media, pseudo experts who often have their own agenda, and online publishing with low barriers to entry and lack of editorial standards; makes it even harder to filter good advice from bad.
Recently there were some false rumours circulating on social media indicating that the COVID-19 vaccination was an ‘experimental medical treatment’ and that therefore, having the vaccine may invalidate life insurance policies.
The Financial Services Council (FSC) quickly launched a media response to reassure the community this was not the case.This is a perfect example of information that may be both topical and widely distributed across social media, but is nevertheless, completely inaccurate.
2. Take advice from family and friends with a grain of salt
Then there’s the advice dished out by well-meaning family and friends at barbecues and dinner parties. As a rule of thumb, it’s worth remembering that generally, people only share positive financial stories in social circles.
You’ll hear about the successful capital gain on a property or the clever investment move, but you won’t necessarily hear about the missteps, losses or piles of personal debt.
Take it with a grain of salt and seek professional advice as to whether financial strategies recommended by family and friends are right for your personal circumstances.
3. Consider advice from all angles with a cool head
It’s not just the source of advice we have to be mindful of, but our own frame of mind when we hear or seek advice. We’re often most susceptible to misinformation when we’re stressed, sad or anxious.
Simplistic information or strategies can seem to be good solutions, but it’s almost always worth reviewing the situation with the help of a dispassionate, professional adviser who can look at all angles and give you confidence in your perspective and decision making.
That’s why FMD advisers are often a great support to people going through emotional times that have significant financial implications, like separation and divorce or the death of a loved one.
4. Be mindful of the knock-on effects
Good financial advice takes your holistic circumstances into consideration because that’s the best way to get great financial outcomes over your lifetime and achieve your goals.
For example, there’s no point getting strong investment returns if you don’t consider the tax implications and end up giving away your returns by paying more tax. It’s great to earn more income to save and invest, but it may be that contributing more to superannuation will make the single biggest difference to your lifetime wealth.
Good advice considers the knock-on effect between financial strategies to arrive at the best overall plan to create and maximise wealth for each individual, couple or family.
5. Take a long-term view
When markets go through cyclical downturns, or crisis hits – think the GFC or the start of the Coronavirus pandemic – fear and uncertainty means it’s only natural to question whether you have the right strategy in place.
If you’ve got a great advice relationship, you can be sure your adviser already knows your financial and emotional needs and can help you through the storm.
And while the best professional adviser can’t predict crises, evidence shows people under advice generally do better in the aftermath of unexpected market falls due to a crisis. This is because losses are often baked in to market returns by the time people become aware of the financial impacts of a crisis.
So without realising it, they may already be poised to benefit from the next upswing. This is why taking a long-term view and staying the course with your investment strategy, typically pays off over the journey.
So next time you hear about the latest money-making tips in your inbox, on Facebook, at a family gathering or Friday night drinks, smile quietly to yourself and rest assured you have a sound, well-considered financial plan in place under the advice of a qualified professional. And that’s always a good deal better than the next great thing.
General advice disclaimer: This article has been prepared by FMD Financial and is intended to be a general overview of the subject matter. The information in this article is not intended to be comprehensive and should not be relied upon as such. In preparing this article we have not taken into account the individual objectives or circumstances of any person. Legal, financial and other professional advice should be sought prior to applying the information contained on this article to particular circumstances. FMD Financial, its officers and employees will not be liable for any loss or damage sustained by any person acting in reliance on the information contained on this article. FMD Group Pty Ltd ABN 99 103 115 591 trading as FMD Financial is a Corporate Authorised Representative of FMD Advisory Services Pty Ltd AFSL 232977. The FMD advisers are Authorised Representatives of FMD Advisory Services Pty Ltd AFSL 232977. Rev Invest Pty Ltd is a Corporate Authorised Representative of FMD Advisory Services Pty Ltd AFSL 232977.