Big changes are coming to the financial industry that could affect the management of your wealth, according to a report by Deloitte. As many as 43% of financial advisors are over the age of 55, and one-third of the workforce will retire in the next 10 years. Not only will this affect the relationship you have developed with your financial advisor, but it could also affect how your wealth is managed in the future.
This is just one factor that could cause mismanagement of your finances as hands switch and that voice of reason you relied on to help you make retirement planning decisions is no longer there. Other mistakes are just as costly and could affect how your money is managed and grown over time.
To help avoid these issues, 12 members of Forbes Finance Council share the most common mistakes they see when it comes to wealth management and how to avoid them. Here is what they recommend:
1. Don't wait until you're out of debt.
Prioritizing is important, but it can prove counterproductive. For example, my client needs to save for the long term, pay off debt and build up a cash reserve. The mistake is to put off any of these goals, when the pro tip is to start all three in proportion -- but start now. Waiting until you are out of debt to start your 401(k) can prove costly. - Paul Ewing, Prosperity Advisory Group
2. Coordinate goals and focus on net returns.
First, make sure your team of advisors is coordinated and everyone is on the same page when discussing your goals. Second, don’t chase gross returns but rather net returns. Make sure to take into consideration all of your applicable taxes for now and also in the future. - Michael Seltzer, Verite Group, LLC
3. Communicate closely with your advisor.
The only way to get the most from your financial advisor is to communicate. Advisors are not mind readers. If you feel that your advisor does not understand you and your goals or is not giving you the advice you need, it is time to find one who understands you. The market will do what it does in the short term and your long-term risk tolerance is most important. Long-term wealth is built by behaviors. - Jody Padar, New Vision CPA Group
4. Consider research-based pricing.
The most common mistake is clinging to tradition or relying on our peers to dictate something as important as pricing. This has led to the endurance of the percentage of assets-under-management fee structure, which is inflexible, fails to communicate value and extends no choice to the client. Wealth managers must begin to adopt more sophisticated and research-based pricing. - Wei Ke, Simon-Kucher & Partners
5. Learn about accumulation vs. distribution.
For most of your life, you're seasoned to think stock market, stock market, stock market. As you approach retirement age or reach specific savings milestones, you should consider distribution vs. accumulation, protecting your wealth from a correction and guaranteeing an income stream in retirement. Force your advisor to educate you on the differences of accumulation products vs. distribution products. - Drew Gurley, Redbird Advisors
6. Invest in different asset classes.
For novice investors, it is important to invest in simple, diversified instruments. ETFs, commodities, real estate and even a small percentage in cryptocurrencies would be indicative of a well-balanced portfolio. The most common mistake that I see is investing too heavily into a single asset class. - Zachary Ramirez, US Business Funding
7. Set short- and long-term goals.
We see people accumulating money without setting any short- and long-term goals. Finding the lowest cost index fund is not wealth management. Disciplines in tax, estate, risk mitigation and cash-flow planning, to name a few, work in tandem with the investment selection process. A comprehensive financial plan can incorporate these disciplines and improve your financial condition. - Amir Eyal, Mylestone Plans LLC
8. Consider potential tax consequences.
The most common mistake I see in wealth management is making portfolio decisions with no regard to the potential tax consequences. Taxation should not be the primary consideration of investment management, but it most certainly needs to be a major factor when analyzing portfolio adjustments. - Rob Gabridge, Tarfis Wealth Management
9. Opt for alternative investment vehicles.
Investing in stocks and mutual funds, while tried-and-true, should not be your only wealth management strategy. Consider alternative investment vehicles, such as buying an online business that requires minimal owner involvement with a proven track record of success. Such ventures may not only provide a higher return on investment, they can prove more personally satisfying, as well. - Ismael Wrixen, FE International
10. Don't let your emotions drive investments.
We all know markets can be volatile. The biggest mistake we see people make is letting their emotions drive their investing. Most people let their money ride the wave because they fear they will "miss out." Too many investors have bought at highs and sold at lows. Don't be emotional; put a plan in place and find an advisor who understands your comfort level and goals and will take the emotion out of investing. - Francesca Federico, Twelve Points
11. Work with a professional.
The most common mistake we see is people trying to manage their wealth on their own, or with the guidance of friends and family, rather than using a financial professional to help them. Too often, clients come to us late in the planning process. Better late than never, of course -- however, we could have done so much more to make their money work hard for them had we a few more years to work with. - Paul Blanco, Barnum Financial Group
12. Stay engaged in your investments.
Many make the mistake of giving complete control of their funds to a wealth manager and being completely disengaged from their investments. But remember that no one is going care more about your retirement than you. It is wise to use advisors who can provide valuable help, but ultimately you need to invest some time and effort to gain investment education so you can be the one making wise investment decisions. - Dmitriy Fomichenko, Sense Financial Services LLC
