What is your definition of financial advice?
A: Getting someone to advise you on a product to buy?
B: Getting useful input to a problem you need solving? Product or no product.
I think it is important to make the distinction because it impacts on who you approach and what you are expecting to get out of the interaction.
PRODUCT DRIVEN APPROACH (the traditional way):
If you approach a life insurer or bank you should expect to be sold a product.
The people you speak to there are trained and remunerated to make a sale of that company’s product. The cost to you is built into the product you are buying. It is transactional.
Product or transactional example: “I need to have something in place in case I die so my family has some money available to them.” Response: Life insurance. A product.
In many circumstances this may be just what you are after to get the job done.
But there are things to be aware of when operating in this environment.
If the person selling you the product is going to be paid more, for selling you more life insurance, you should not be surprised when they try and sell you more life insurance than you require.
This person is also likely to be incentivised to try and sell you other stuff too. Like a retirement “policy” perhaps.
They may even offer you a lower premium on your life insurance if you buy the retirement product they offer.
You would do well to thoroughly scrutinize the terms of these offers.
This includes the costs, the flexibility to change contributions as life changes, the flexibility to switch to another provider without penalty.
It is highly likely that you will pay more in fees and potential penalties than any reduction in premiums could ever hope to offset.
PROBLEM SOLVING APPROACH (real financial advice?):
If you need to solve for a problem however, it is not the product but the process that you would probably get more value from.
The process approach solves a problem which is broader than the product itself.
NOTE: You will pay for the advice or service rather than the product under this approach. It would be a mistake to think you are not paying more when you are being sold a product. The fee is just not disclosed.
How would this process differ in terms of the life insurance example?
You’d consider it in the context of your needs in a more meaningful way. The answer would not be rooted in a product sale.
How much life insurance do you actually need?
What is the impact on the rest of your financial life by diverting savings to this rather than something else, like your retirement?
How do you find a balance between these competing objectives?
How will this change over time?
I offer and favour the problem solving approach because it makes sense to me.
What about you?