Those of you working full time spend 25% or more of your time working to earn a living.
On top of that, many of you spent significant time and money to gain the skills of your
trade or profession. With all this effort made, we are amazed at how many people
spend so little time on managing their hard-earned money.
The biggest money mistake you can make is not making a serious effort to make sure
your money is managed effectively. Understandably, some of you don’t have the skills,
knowledge or the time to manage your own finances. You have two choices. You can
educate yourself by taking courses or reading or you can hire a qualified advisor to help
you with your finances. And even if you hire a professional to help you, you still need at
least a basic level of knowledge to evaluate the effectiveness and value of your
investment advisor.
Many of you might be amazed at how much you can do yourself, by spending some time
reading. In this column, we periodically review investment books that we believe provide
the best advice available. See our previously published article titled “Must Reads for the
Do-It-Yourself Investor”. Visit our website (See link below) and click on our “In the
News” web page to view this and other educational articles. There are numerous other
publications that provide sound money management advice.
If you seek a professional, we highly recommend that you seek out an advisor with the
Certified Financial Planner®(CFP) designation. These days, anyone can call
themselves a financial planner and there are a myriad of professional designations
used. The majority of news programs and magazines that discuss considerations in
selecting a financial planner, recommend the CFP credentials.
Pay special attention to how the advisor charges for his/her services. Traditionally,
investment advisors made their money from commissions. Others are called “fee-based”
advisors who charge clients for a percentage of the assets managed. We believe that
“fee-based” services are generally preferable to commissions based services. This is
because fee-based advisors have more incentive to recommend mutual funds that are in
the best interest of their clients. We recommend that you do your homework, as some
advisors are both commissions and fee-based.
A relatively few advisors charge by the hour or charge fixed fees for their services. We
believe this approach is superior to either commissions or fee-based services. Since
the fees are more transparent and typically not biased towards any particular investment
companies or products, clients are able to feel more comfortable and in control of their
investment decisions.
Whatever you do, don’t hire someone just because they are nice. They might be smiling
while they pick your pocket. Make sure your advisor is qualified and honest. Ask for
references and focus on the advisor’s qualifications and experience. Check their
credentials and review your statements carefully to be sure you understand what you’re
being charged. For more specific ways to judge your investment advisor, visit our
website and see our past article titled “Is Your Financial Advisor Acting in Your Best
Interest”.
David C. Patterson, CFP® and Erin Patterson-Preston, CFP® are the owners of
Patterson Advisors, LLC, a fee-for-service-only financial advisory firm. Patterson
Advisors, LLC is a Registered Investment Advisor, registered with the State of Michigan,
helping clients in Waterford, Clarkston and Royal Oak, Michigan as well as other
Oakland County, Michigan communities . Visit www.pattersonadvisorsllc.com for more
information or call 248-674-2108.
Published in the Oakland Insider, June, 2008
The Biggest Money Mistake You Can Make
By David Patterson and Erin Preston (formerly Patterson)