thisismoney.co.uk carries the disturbing story of a businessman who lost £250,000 (~$500,000) from his pension fund as a result of poor financial advice.
68-year old Ted Rapley had accumulated £437,000 over 30 years and was set to receive a comfortable lifetime retirement income of over £32,000 a year. However, on the recommendation of his financial advisor, Mr Rapley opted for much riskier stock market-based investments which have performed poorly, but from which the advisor pocketed huge commission.
Although Mr Rapley has received £48,000 from the UK’s Financial Services Compensation Scheme he is still considerably out of pocket as a result of this seemingly greed-driven advice. His story should serve as a warning to all those relying on the advice of others to manage their money.
Finance is a complex business, and we don’t all have time or inclination to study in detail the finer points of the numerous options available. As such it can be useful to seek the advice of professionals, but always remember they could be more interested in their commission checks than your financial wellbeing.
The golden rule of finance is that risk and reward are inextricably linked. There’s no such thing as a free lunch. If you’re being offered higher returns, these inevitably come with a higher risk. High-risk investments are not bad, per se, but should only be taken on in the full knowledge of the potential downside. If an advisor is extolling the possible gains, make sure you quiz him(her) about the risks.
Not all financial advisors are purely self-motivated money-grabbers, but some are. Make sure you know how much commission they stand to gain from the choices they’re recommending.
As in most things, KISS – keep it simple, stupid! If you don’t understand it, don’t do it! For most of us, the simple options are usually the best. Exotic investments might be right for a few people, but if you take this route make sure it’s an active choice based on personal research and not something you’re bounced into by an over-zealous salesperson.
Finally, always remember it’s YOUR money. Get advice, and lots of it, but at the end of the day make sure you’re the one that makes the decisions.
See also Financial Advisors and How to Choose Them
