The Paradox of Trusted Advice

When you stop to think about what professions are high on your list in terms of honesty and ethics, financial advisors probably aren’t near the top. Most people will have financial advisors somewhere around politicians, car salesman, and lawyers. Shady financial advisors and guys like Bernie Madoff have caused us all to think twice before reaching out to someone for financial help. We should all enter relationships with financial professionals with a healthy dose of skepticism.

In order to get the best financial advice, you need to let someone see your entire financial picture. If a friend asks me if they should invest in an IRA, I can’t give them good advice without the knowledge of where they currently stand financially. It would be imprudent to give them the greenlight to open an IRA, without finding out about the thousands of dollars in credit card debt that they were paying 18% interest on. But, what if the friend doesn’t feel comfortable disclosing information on their debt to me because they don’t want me, as a friend, to judge them for having credit card debt? Hence, the paradox of trusted advice.

If a family member wants to know if they should spend $7,500 on a dream vacation to Europe, I can’t give them a simple yes or no without a deeper understanding of their situation. How much do they currently make? What percentage of their annual salary does this $7,500 represent? Do they currently have any debt? Are there any other major upcoming expenses they need to plan for? How big of a priority is it for them to travel?

The person you would trust the most to give you good financial advice, may also be the person you would be reluctant letting them see everything about your finances. Many people like to stay tight-lipped when it comes to their salary, expenses, debt and the amount they have invested. Good financial advice comes from a deep understanding of your current situation, including those topics.

One big reason we might not want to tell someone close about our finances is a concern the trusted person might tell other friends intimate details of our financial life.  Most people that work in the financial services industry, who are good at what they do, are very professional when it comes to managing information about one’s personal finances. While you should still request confidentiality when discussing your finances with a friend, chances are they already operate under the confidentiality protocol.

What you can do about it.

Now that you know the paradox of trusted advice, what can you do about it? As with most financial topics the decision comes down to priorities and tradeoffs. Would you prefer working with someone you have complete trust in, or, is keeping your finances private from close friends/ family more important? The financial industry attracts a lot of unscrupulous people, and it’s difficult to find someone that you trust will give you the best advice. For me, giving up a little privacy is worth it for the opportunity to work with someone you have complete trust in.

A better answer to the question though is to educate yourself, so you can make better financial decisions. Ninja Piggy is all about empowering people to make informed financial decisions. You and you alone have the ultimate responsibility in all of your financial decisions. No matter how much you trust people to make decisions on your behalf, you need to make sure you always understand what is going on with your finances. Keep asking questions, keep learning, and never disengage from decisions that impact your finances and your life. It’s always nice bouncing ideas off of other people when it comes to big financial decisions. However, you shouldn’t ever come into those situations without having done a little background research on your own, regarding the financial decision.

Caveat emptor is Latin for “buyer beware”. We should approach every financial relationship with a buyer beware mindset. Remember that no one is going to care about your money as much as you do. You owe it to yourself to have, at least, a basic understanding of personal finance topics. You’ll spend countless hours in life working to make money. Make sure you spend a few hours educating yourself on the best way to handle the money you’ve made.