Advisor

It is important to recognize that financial advisors are financial institutions. These institutions include banks, insurance companies, mutual fund companies and stock brokerages. These are the companies that will provide the product your financial adviser will use in developing your financial plan. These institutions have a significant influence on financial advisors. It is important to understand the four basic rules that they follow. These basic rules will be a huge help when choosing a financial adviser personal financial planning.

These are the 4 rules:

1. Take Control of Your Money

2. Keep it coming!

3. It should be kept as long as possible

4. Give back as little as possible

This list might seem at first blush offensive. It could make you feel like you are being attacked by these institutions. They are just running a business, trying to make money, and you would probably follow the same list if you were there. Let's take a closer look at each one and talk about how we can use that knowledge to help us choose a financial advisor.

1. Take Control of Your Money

Imagine that you were opening a bank right now. What would be the first thing that you need to do in order to get your bank started? Deposits are what you need, right? How do you get these deposits? Offer your potential clients something in return for their money.

Every financial institution depends on clients placing their money with them. Their advertising and sales are all about attracting people's funds. The role of the financial advisor is part the institution's sales team. His primary function is to raise money for the institution.

This is not a bad thing. If done correctly, everyone wins. You get your money back, the institution gains more interest rates and potential gains, and the financial advisor gets a commission to find a new client.

Be aware of this dynamic when selecting a financial advisor. While the advisor is paid by the financial institution for bringing you in, he must also be acting in your best interest and doing what is right. A great financial advisor will understand that in doing what is best for you, he is also doing what is in the financial institution's best interests.

2. Keep it coming!

Again, imagine yourself as the bank president. What frequency do you want people deposit their money in your bank? You want people to deposit their money as often as possible and on a regular basis. How can you do this? Imagine if people could automatically deposit their money every month with you on a regular basis.

This is why automatic billing and direct deposit were invented. This is why the IRS automatically withholds income taxes. You thought it was a convenience.

These things may be convenient but they are really designed to make your money work for you every month, without you spending too much time on it.

This will allow you to be more in control of your financial advisor selections and working with financial institutions. It doesn't mean you have to follow their advice blindly. This convenience can be used to your advantage if you understand its purpose and philosophy.

3. Save Your Money as Long As Possible

For a second, think like a bank president. When do you want clients to withdraw their money from your bank after they have deposited it? If possible, never correct. The more time you keep the money, the greater chance you have of making a profit.

All qualified plans, including 401ks and IRAs, Annuities and Variable Life Insurance policies, have lengthy withdrawal penalties. Except for a few exceptions, qualified plans cannot be touched until the age of 59 and a quarter. Variable life insurance and Annuity contracts can have 15-year withdrawal penalties.

These penalties are there to make sure that your money is not withheld for too long.

This rule should be considered when selecting a financial advisor. Be sure to understand the exit provisions for any financial product that you're discussing.

4. Give back as little as possible

For a second, think like a bank president. How much money do you want to return to your depositors when it comes to actual cash withdrawals? You want to give them as little money as possible. What could you do to discourage them withdrawing the money in one lump sum or to keep it in your bank for longer? Make withdrawal rules. Tax it? Penalize it

Many of these plans are taxed in a way that allows the money to be kept inside the plan as long as possible. This allows the financial institution to continue using the money indefinitely.

Financial institutions want to preserve your money for as long as possible. There have been many new products and ideas recently about how to pass the money to the next generation in qualified plans to avoid paying taxes. The plan locks the money indefinitely.

It's a great idea but who will it benefit?

These are the 4 Rules of Financial Institutions. These rules apply to all financial institutions and the financial advisors that represent them. These rules are not necessarily bad. If you had been the bank president in each example, you would also have followed the rules.

It is not easy to choose a financial advisor. It is not easy to interact with financial institutions that are behind the financial advisor.