When I was 18, my father helped me open an IRA at a local credit union. I didn’t know much about investing and I chose to invest in a CD. This probably wasn’t the right investment for my age or investment needs, but it was a start.
After that, I was on my own when it came to investing. I soon joined the U.S. Air Force and moved halfway across the world. I wanted to continue investing, but I still didn’t know much about it. I went to a financial adviser who was recommended to me by a friend and ended up buying into a mutual fund with a high front load and heavy management fees. That was my mistake, but in the long run I feel like I am a better investor because of it. It forced me to understand that most financial advisers don’t have a fiduciary duty to you. I also learned how fees and investing work, and when to cut your losses. I eventually stopped throwing good money after bad and rolled my investment into a no-load mutual fund with a much lower expense ratio.
Before long I had access to the Thrift Savings Plan (TSP), which is the government version of a 401(k). The TSP offered me a nice tax incentive for investing, as well as an easy to manage account with low-cost index funds. Soon I was contributing to the TSP and maxing out my IRA. At this point all of my investments were for retirement and I began thinking about making some shorter term investments. I was still single and young, but I wanted to start planning for my post-military career, buying a house, getting married, and other major life events.
I contacted a financial planner at a well-known investment firm. I met with the financial adviser for about 15 minutes. I explained my financial situation and goals, and I asked for investment recommendations based on my age, needs, and risk tolerance. His response floored me—but not in the way I had hoped. He reached into his drawer and pulled out a single piece of paper and slid it across his desk with a twinkle in his eye. “This is what you need,” was all he said.
As I began to look over the information, he continued explaining that all I needed to do was fill out a client form and leave a cancelled check with his secretary and he would set up an automatic monthly withdrawal for the investment. He deflected most questions quickly and turned them back around on me. He laid it on thick and heavy, and I just didn’t trust the guy.
After a few minutes of trying to convince me this investment would set me up for financial freedom, he practically ushered me to his secretary, all the while pressuring me to leave a cancelled check with her so she could set up the automatic investments. He also handed me a large stack of business cards to distribute to the Airmen in my squadron. These ended up in the trash can outside his office.
Was the investment good? Maybe. Was it right for me? It could have been. But he didn’t take the time to explain it to me in a way that made sense to me, nor did he give me a chance to think it over before he began the hard sell. In short, I wasn’t comfortable dealing with him. So I didn’t. I later looked up the investment and it came with a very high expense ratio and didn’t have a great track record compared to similar indexes. Thankfully I knew more about investing than I did the first time around and I avoided another bad investing experience.
I expect more out of a financial planner, whether they are independent or work for a major company. That is why it is so important to interview a financial planner before hiring him or her. This experience also highlights the importance of being comfortable with the person who is going to help you manage your money. If you aren’t comfortable with the person, firm, or investment, then look elsewhere. There are tens of thousands of financial planners in the country, and hundreds of thousands of investment opportunities. Make sure you are comfortable with your selection. It is your money, even if you need help investing it.