The high price of ignoring financial advice
People hire financial advisers with the very obvious goal of getting advice on how to handle their money. So why do investors often cut advisers out of consequential decisions?
Some advisers say their threshold for wanting to know about a client’s out-of-budget expenditure is around $2,000. But sometimes clients skip picking up the phone and make financial decisions on their own, even when it is a big one.
It can happen even with the best clients, who otherwise seem to be listening to advice. That is what Malik Lee, a certified financial planner in Kennesaw, Georgia, found when one of his clients cashed out a retirement account after he stopped working, thinking it was no big deal. But a move like that can result in a huge tax bill, and there is often nothing a financial adviser can do after the fact.
Another retirement decision that can be tempting to make on your own is when to take Social Security. If you are already employing a financial adviser, however, this is one area of expertise you should tap in to. The adviser has specialized training and also will likely have access to professional programs that will run the numbers for you.
The age at which you claim your benefit can have huge financial impact on your retirement, because the later you take it, the larger your benefit, said Edward Vargo, a financial adviser based in Ohio.
Waiting until 70 can add as much as $6 000 a year in benefits, Vargo said.
Sometimes clients do not talk to their financial advisers about important decisions because they know they are wrong and yet they intend to go ahead anyway.
Therese Nicklas, a financial adviser in the Boston area, has had some tense meetings with clients who were not only keeping things from her, but also from each other.
What can start as a move with good intentions can end up causing a lot of financial stress. One situation that is good to check with a professional first is if you want to swap one kind of debt for another – like a student loan with a high interest rate for a home equity loan with a low-interest rate.
It might seem like a no-brainer, but there could be other considerations that only a professional could catch. When Nicklas has this situation with clients, she evaluates how much stress that puts on the house, because the parents are now responsible instead of the student.
“It’s like having an airplane on your roof,” said Nicklas.
Children often drive emotional decisions about money, which can make parents act counter to advice that is legally bound to be in their best interest.
Certified financial planner Larry Ginsburg, of Oakland, California, has also seen this phenomenon firsthand, with parents wanting to help out children even to their own financial detriment.
When he cannot give his blessing in good faith or mediate with the family, he fires himself.
“When people make these highly emotional decisions, they are doing so with the clear logic that they are not doing the right thing. But they can see nothing else,” said Ginsburg.
Ginsburg prefers to be involved in even the smallest transactions with clients - he says he has the most interaction with his millennial clients who call him to discuss whether they should buy a new tablet.
One of his specialties is negotiating car sales. “We buy about 40 to 50 cars a year for clients, so it’s a pretty structured process for us,” said Ginsburg. “People hate buying cars, because they know they are going to get screwed, so clients really appreciate it.”