Three Principles for Finding Good Financial Advice

Separating those who say from those who do

Last week I wrote about the importance of good advice when it came to finding financial success. In that post, I talked about how all advice is not created equal and how one success does not equal success in everything.

This week, I want to share with you three valuable principles for evaluating the advice you receive.

1. Practice what you preach.

Often times those who are practicing what you want to do may not be preaching their advice. They may be quietly doing what it is they are so good at. You may need to do some searching to find these people, and then approach them and ask for their guidance. This is an excellent way to find mentors.

Practice what you preach is about distinguishing between those people who are openly giving their advice, such as a financial "expert," a speaker or instructor, or a media commentator. Many of these people make a living from sales made by offering their advice. The question I would ask before acting on their advice is: Are they taking their own advice?

In other words, are they investing in what they recommend you invest in? Are they practicing the habits and strategies they are advocating? Are they living their message daily?

When it comes to brokers, does your real estate broker invest in real estate? Did your stockbroker purchase the same shares of stock she is recommending you to buy?

If a person does not follow his or her own advice, then something is amiss.

2. Consider the source.

Have you ever watched the commercials on a financial television show? The ads typically feature mutual fund companies, stock brokerage firms, and investment banks. It's no wonder that most of the information from these shows favors mutual funds, stocks, bonds, and related financial instruments.

If a show's number-one advertiser is a mutual fund company whose advertising dollars are keeping the television program afloat, are they going to speak out against mutual funds? Probably not. Instead, they'll promote why mutual funds are such a great investment and that you need to keep buying them.

Sometimes it's just downright obvious. "Residential real estate is on the upswing!" stated a survey on the front page of a national newspaper at the end of 2010. The study said that the real estate market had reached its bottom and was now improving. In other words, now is the time to buy a house. The fine print wasn't even that fine. The National Association of Realtors did the study.

Consider the source of the information you gather.

3. Adviser or salesperson?

Follow the money of the person selling you the investment. There is a big difference between a true financial adviser and a salesperson. Does the person advising you have no agenda (meaning they do not financially benefit, directly or indirectly)? Or do they have an agenda of their own (meaning they will make a commission or fee from what they are selling you)?

Don't get me wrong. There are many excellent salespeople in the world. I work with them regularly. They make me money, and I make them money. The warning lights go off for me when the person comes across as a "financial adviser" but, in reality, they are only recommending what they are paid a commission on. Just ask the question, "How do you get paid?"

Transaction versus Relationship

When it comes to brokers-stockbrokers, real estate brokers and business brokers, to name a few-you can generally separate the good from the not-so-good by how they approach your potential purchase.

If you're talking with a broker or agent whom you've never met before and the conversations are only about this one deal, this one buy, then chances are she's only in it for the short-term commission from that one transaction. You may never hear from her again.

If, on the other hand, she's talking about other future potential purchases and asking you lots of questions (instead of doing all the talking), then she is probably more interested in developing a long-term business relationship with you.

That's who you want to work with, and most often, that's who will give you good advice that's good for you, not just them.

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