How can you tell if the financial advice you’ve received is real, useful financial guidance or just a case of “fake news”, i.e. financial “quackery”?
Unfortunately, a lot of what happens in the financial industry in Canada is financial “quackery,” as we like to call it. Since the most common methods are so familiar to most of us, they seem normal. It’s hard to see how inadequate many financial procedures are until you compare them to the way things work in other fields.
One way to figure out whether the advice you’re getting is real guidance or “quackery” is by determining whether the advice is specifically for you and tailored to your specific financial goals and position. No one procedure works across the board. If the advice you’re being given seems like a “cure-all”, that could be a good sign that it’s fraudulent or “quackery,” — or at the very least, misleading.
So, what is financial quackery, specifically?
The financial world is full of this sort of “cure-all,” inadequate advice.
What does that mean?
It means be wary if someone recommends a financial product or service prior to setting goals, analyzing your entire financial outlook, and creating a Financial Plan. If someone is trying to promote a financial product or service who doesn’t know your goals and your full financial position, they’re probably participating in financial “quackery.”
If their emphasis is on selling products, instead of providing real advice, that should be a big, red WARNING sign as well.
But why is financial “quackery” a problem?
This sort of inadequate financial servicing is a large problem in Canada. In fact, it’s one of the main reasons why many Canadians struggle financially. Canadians who weren’t first advised to set financial goals and make financial decisions while looking at the entire financial “picture” may not even realize they didn’t get real, adequate financial guidance.
Think about it from a medical standpoint.
If you went to a doctor and they had you fill out a Pain Tolerance Questionnaire and then prescribed you a treatment with no exam, zero medical history, and after doing zero medical tests, would that seem legitimate to you?
No, that would seem like a treatment that maybe works based on your “pain tolerance,” but no other consideration for the full “picture” when it comes to your health.
So why should the process be acceptable when it comes to the financial industry?
But what does that sort of questioning and procedure have to do with financial “quackery,” you may ask?
Imagine that pain tolerance example as a risk tolerance questionnaire instead. Think about it — making recommendations for your financial outlook based solely on your risk tolerance is ridiculous. An advisor should know your entire financial position, and your overall goals, before making a recommendation that could significantly impact every area of your financial future.
If a financial advisor doesn’t have the whole picture, and doesn’t know where you want to end up financially, how can they know things like: whether the money involved is for retirement, or whether any investments have the potential to achieve the goals you seek? If all they know is your risk tolerance, how can they really be sure what the most intelligent and effective decisions are to make when it comes to your investments?
How can financial “quackery” impact your retirement plan?
One of the most common investment errors is investing too conservatively to achieve your retirement goal – and this error usually results from financial “quackery.” This can happen when a financial advisor uses a risk tolerance survey to recommend a low risk, low return portfolio. With such a portfolio, it can be easy to not get your retirement fund where it needs to be. It may feel like a “safe” investment, and make you feel good the way a “snake oil” would make you feel good about some form of medical quackery. But it is not effective when it comes to your financial goals.
Not funding your retirement accurately is a huge problem for a lot of Canadians. What many Canadians are doing, often thanks to bad financial advice, will leave them far short of what they need by the time of their retirement.
Many Canadians are only asked about their risk tolerance and not their goals. That leaves their funding situation with a major disconnect.
Ultimately, this all comes down to the fact that financial “quackery” may seem legitimate, but it’s too general and not adequate. And it’s one of the main reasons that many Canadians struggle financially.
Financial quackery can ruin your retirement plan by not letting you make an informed decision about your risk tolerance AND your goal. It can lead you to invest too conservatively so that you have a high risk of failing to have the retirement you want.