Are you getting good financial advice?

You go to a financial advisor looking for advice. What you hear might sound good, but how do you know the advice is genuine and not focused toward selling products with higher fee incentives? An advisor with a sell focus versus advisory focus will generally suggest products like annuities, mutual funds and managed accounts. These products have little focus on in-depth planning and long-term benefits for you as the client.

When it comes to good financial advice, there are many ways to spot an advisor not working in your best interest, but the simplest way is listening to what they recommend. Here are three pieces of financial advice that every great advisor should be guiding their clients toward. These recommendations ultimately reduce the income of your advisor, especially for fee-only advisors.

1. Give to charity

I encourage my clients to give to non-profits they care about for a variety of reasons. Donating to special causes not only benefits the organization, it can be rewarding for you too. Giving to a worthy cause can be a mood booster, making you feel happier and more fulfilled. If you are a parent, you can introduce your children to the importance of generosity and simply helping other. Sharing the experience of donating to a church or charity with your children shows them that even from a young age, they can make a positive impact on the world. While there are also tax benefits to giving, our biggest givers are receiving back many more benefits than tax savings alone.

2. Delay Social Security benefits

You are eligible to receive your Social Security benefits at your “full” retirement age, which is specified by the Social Security Administration (SSA). For most of us, this is around age 66 or 67. You can start collecting as early as age 62, and delay collecting as late as age 70. For every year beyond your full retirement age that you delay, your benefits will grow by about 8%. Delay from age 67 to 70, and you will get benefits 24% bigger. Meanwhile, if you start early, your benefits can shrink by up to 30%. And yet many advisors want you to take social security as soon as possible. But the math is simple, and your deferral is rewarded in the long-term. 95% of the time, it is best to wait.

3. Pay off debt

I encourage my clients to pay off as much debt as they can, as fast as they can. Debt is a threat to your financial security because it keeps you from making the most of your money. Being debt-free alleviates the burden of each monthly payment and more importantly, the interest you are paying on the debt. You should start by eliminating high interest debt first (typically credit card debt) and then work your way down to the lowest cost to borrow debt you have. This is typically your mortgage.

For clients that have maxed out their 401ks and IRAs, saved enough for college funds and have a 3-6-month savings built up, I encourage them to pay down their mortgage. Paying off your mortgage versus investing those extra principal payments in the stock market stir up a lot of debate in the financial community. There is the argument that you could invest the extra money and make a greater return right now than what you are paying on a 4% mortgage interest rate. While this can be true, the peace of mind of having no debt outweighs the benefits of gains you could make with the stock market.

I refer my clients to a blog I wrote a few years ago outlining the rationale for paying off your mortgage.

Posted October 14, 2019