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Should You Be A Self-Directed Investor

Updated on June 19, 2013

Why You May Want Guidance

Many investors over the years have chosen to take the self-directed route in relation to their investment portfolios as well as various other financial decisions. Often the reason is understandable and driven by a distrust of someone else who may have an agenda to sell them a product they simply don’t need. In some cases they just simply deem that it is more cost effective to invest on their own. Many simply feel they have the financial knowledge and background to address their own financial concerns. Each of these can be valid points. However, often there are other factors that must be weighed beyond your own confidence in your personal abilities.

In most families there is often one member of the household who is the more financially astute and likely to exercise greater control over investment decisions. Yet what happens to your spouse for instance should you pass away ??? While you may have accumulated sufficient assets and been properly insured, who will guide them in the best course of action when you’re not there to take the reins. Can you be sure that there won’t be a silver tongued salesman that won’t be waiting to give them harmful advice ??? Obviously this will not always be the case, but it is a risk.

Over the many years of experience that I have had as a financial planner I have often encouraged the spouse whom is less involved to attend at least an annual meeting with myself and their partner so they have a minimal comfort level with me personally. The last thing I would want is for the survivor to have to form a bond of trust immediately after they have just lost a loved one and are often in a fragile state of mind. This becomes all the more difficult for those surviving spouses in which the deceased party handled everything without counsel.

The benefit of working with a competent and trusted financial planner/investment advisor can alleviate mush of this. It is a good idea to form a relationship with someone whom you have confidence in well in advance of a family crisis. This can be a difficult process since not all financial professionals are always “professionals”. In general I would advise seeking out the counsel of someone who is compensated exclusively on a fee only basis. Most fee only advisors work on a percentage of assets under their management. This eliminates the potential for product bias and being sold something that is simply not appropriate for the sake of hitting a sales goal. In some cases for those investors who would prefer to maintain investment control of their portfolio, there are a number of financial planners willing to work on a consultative basis that are compensated by a flat rate or even hourly fees. This allows you to seek guidance and still manage your own money, while still forming a trusting relationship with someone you are confident with. Keep in mind that a true financial planner will not just assist you with investment related issues. They should be well versed in areas of tax, insurance and estate planning to give you a comprehensive approach to financial solutions.

In reality the majority of investors that have chosen the self-directed route are likely under qualified to take on the task and often know just enough to be dangerous. Yet that is not true of all investors. I have had the privilege of meeting a number of sophisticated investors over the years that had been fairly well equipped. Yet I cannot recall meeting one family in which all the members were quite so sophisticated, and succession planning often became the discussion of choice.

If you are like most individuals, you care about the wellbeing of your loved ones even after you’re gone. So consider this when determining just how much guidance you find to be necessary. Not all financial advice is discretionary. And there are many honest financial advisors whom possess a great deal of knowledge beyond that of the layman. It is usually a good idea for each family to have some form of a relationship with a trusted advisor, even if it’s an ancillary one.


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