Sudden Wealth: 5 Tips to Protect Your Financial Interests

April 16, 2015

Connect Member

Founder, Paladin Research & Registry. Author, “Who’s Watching Your Money”

paladinregistry.com

Sudden wealth is a Wall Street phrase that describes a phenomenon that impacts millions of people who suddenly become responsible for a large sum of money. They may or may not be prepared for this responsibility, which creates a substantial amount of financial risk.

Several types of life events create sudden wealth:

  • You retire and your assets are rolled into a self-directed IRA
  • A family inheritance
  • The death of a spouse
  • A divorce
  • A catastrophic illness or disability

You are “suddenly” responsible for making decisions that impact your future standard of living and financial security.

Your Involvement
You should be involved in your financial plan and the investment of your assets as early in life as possible. Do not defer all of the decision-making to a spouse — even if the spouse knows more than you do. It is easy to make investing assets someone else’s responsibility until you have to take over and you are not prepared to make the right decisions.

Think of involvement as your learning curve. By being an active participant you are more aware of financial issues and the decisions that impact the investment of your assets.

Your Financial Advisor
There is a good chance you have a financial advisor who controls or influences the investment of your assets. You may have an existing relationship with the advisor before the sudden wealth event occurred or you are interviewing prospective advisors. The easy decision is to continue your relationship with a current advisor. But, is it the right decision?

If your current advisor has been dealing with your spouse and not you, there is a good chance he will try to dominate the relationship with you. His approach may be “I am the financial expert. I know more than you about investing. You should not question my advice.”

The advisor may know more than you about investing, but that does not mean the advisor is competent or ethical. In fact, the advisor may be a salesman who is using relationship and sales skills to convince you to buy what he is selling. It is critical that your financial interests come first.

Protect Your Financial Interests
Five tips will help you protect your financial interests — the tips apply equally to existing and new advisors.

  1. Make sure your advisor is a financial fiduciary. This means the professional is a Registered Investment Advisor or Investment Advisor Representative. RIAs and IARs are held to the highest ethical standards in the financial services industry.
  2. Compensate you advisor with a fee and not a commission. RIAs and IARs are compensated with fees. Salesmen are compensated with commissions. You do not want salesmen investing your assets.
  3. Your advisor should disclose information that proves he is a financial expert: Education, experience, and applicable certifications. This is the only way you can evaluate their expertise because advisors do not have legitimate track records.
  4. The advisor should document his compliance record for you. Or, you can go to FINRA.org/BrokerCheck and view the advisor’s record. Be wary of advisors who have a history of client complaints. They may not be as trustworthy as they say they are.
  5. The advisor should also disclose all of the expenses that will be deducted from your assets, your risk exposure, and the rate of return you should expect from the investments that are being recommended to you.

All of the above information should be documented in writing so you have a permanent record of the advisor’s communications. You should not trust verbal information that may be sales pitches or undocumented sales claims. If advisors are telling you the truth, they will have no problem documenting the information you need to make the right decisions. However, if advisors resist documentation they may be misrepresenting or omitting key information that impacts your financial well-being.

Jack Waymire is a member of the DailyWorth Connect program. Read more about the program here.

 

ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT