In our times of need, we always turn to our friends for advice, whether it’s life, relationships, careers or anything that’s on our mind. Well, why should finances be any different, right? Well, when it comes to finances it gets slightly more complicated. In this blog, we cover why taking financial advice from your friend might be a recipe for disaster.
You Lose Objectivity
When you’re with your financial adviser, you need to ask some hard questions. There may be disagreements over how you want your money to be invested. In fact, your advisor might even give you an earful over your frivolous spending habits. They will not take into account any personal problems that may have led you to act that way, the best advisors are quantitative and analytical. However, if your friend is your advisor, you may pull back on the punches, not ask the hard questions and not hold them accountable for their bad advice as you value the relationship. This is bad news as you aren’t able to take an objective view of your finances, neither is your friend able to maintain their objectivity as they know your problems and have a stake in them.
Your Friend isn’t the Expert
Qualifications and experience mean everything when it comes to being a financial adviser. While your friend may have made a lucky investment and made a great fortune for themselves, it doesn’t mean they will be able to replicate the success for you. While looking for a financial adviser always look at their past track record, years of experience and their college education. If they’ve concentrated on acquiring a degree related to financial services, it’s clear that they were focussed and dedicated to Financial Management as a career and didn’t drift into it. This level of intent and commitment means they are passionate about being a financial expert and are likely to be up to date and current with their strategies. While choosing a financial adviser always look at the number of clients managed, assets under management, a record of performance, and data with regulatory bodies (To check for fraud). This will ensure that all your bases are covered and you’re taking financial advice from the best in the business.
Depth & Breadth of Knowledge
Your friend might be an expert player in the stock market or in mutual funds. Or he may help you with the right tips when it comes to saving taxes. However, does he understand the exact needs of you and your family? Does he know the kind of insurance cover you need to maintain your standard of living? Can he do succession planning in such a way that your family is well taken care of after your death? Unless your friend is a financial planner, most likely they may be good at one or two of these financial aspects but rarely all of them. Hence it’s necessary to invest a little time and money, in the beginning, to avoid disappointment and missteps due to bad financial advice.
Tools they have access to
Would you trust a chef that has access to the finest sharpest steak knives on the market to carve up your premium ribeye steak, or would you do it yourself with a 3-year-old blunted knife? Well, the answer seems commonsensical, similarly, financial advice is no different. Expert financial advisers have at their disposal a number of tools that make wealth management easier and more efficient. Wealth Management platforms such as Wealthfy are used by top advisors around the world to make financial decisions. These platforms have Artificial Intelligence-powered Robo Advisers to drive their decisionmaking for them and also crunch terabytes of data in seconds. These investment management platforms can make it easy to perform complex financial tasks such as portfolio monitoring, performance attribution, rebalancing and give you 100% transparency into each and every financial decision. No matter how good your friend is at financial decision making, it’s hard to beat a professional financial adviser with all these cutting edge tools at their disposal. Hence, it’s essential to consult a financial adviser when it comes to improving your financial health in the long run.