Financial Advisers Want to Manage the Wealth You Already Built. Financial Coaches Help You Build Wealth in the First Place
About the only thing financial advice and financial coaching have in common is the word “financial”. They are as different as night and day.
Financial advice focuses on your portfolio by providing specific securities and investment advice. The financial adviser business model is all about managing the money you already have. You give them control of your assets and they do the work for you.
Financial coaching is different. It focuses on your education, growth and decision process so that you master wealth building skills. The coaching business model is all about helping you build wealth in the first place. You remain in control by learning how to manage your money smarter and make better informed investment decisions.
In other words, financial advice gives you a fish while financial coaching teaches you to fish so that you can have all the fish you want for the rest of your life.
Which would you rather have, and why?
The Difference Between Financial Advice And Financial Coaching
Financial coaching still pays attention to the investment side of the business. We just approach it in a different way.
In financial coaching there is no analysis or valuation of specific securities or markets, but there is education on investment strategy and risk management so that you can do your own securities analysis and make your own, independent investment decisions.
Your personal financial coach will never provide a specific asset allocation recommendation to move a percentage of assets into stocks, mutual funds, bonds or any other investment, but your coach will educate you about the intricacies of asset allocation so that you can independently make an appropriate decision for yourself.
“When we honestly ask ourselves which person in our lives means the most to us, we often find that it is those who, instead of giving advice, solutions, or cures, have chosen rather to share our pain and touch our wounds…” - Henri Nouwen
In coaching there are no specific recommendations of investment advisers nor does the coach serve as a person who evaluates investment advisers; however, your financial coach will work with you as an unbiased partner to develop the skills you need to pick the investment adviser that is right for you and to understand the trade-offs in delegating to an investment adviser versus managing your money independently.
In short, a personal financial coach always focuses on you – your education and decision process as well as overcoming the obstacles that are keeping you from reaching your financial goals. Your coach never makes specific securities or market recommendations because that is the domain of financial advice. As you will see below, the two should never be mixed.
It is not in your best interests.
Traditional Financial Advice Has Failed – and the Statistics Prove It
Financial coaching has developed for one reason – because it is necessary.
According to the U.S. Department of Health Education and Welfare more than 95% of the population is failing to retire with financial security. A separate study by the American Council on Life Insurance came to almost identical conclusions.
According to the U.S. Commerce Department, American’s personal savings rate had declined to negative 1% by 2006 and was at the lowest rate since the Great Depression of the 1930’s.
“The role of the financial adviser has to be more than just finances. It has to be life coaching.”- Dan Sullivan; Financial Planning, Sept. 2007
According to LFE Institute 46% of American workers have saved less than $10,000 for retirement and the average American household has 13 credit cards with an average balance of $8,000.
According to the American Bankers Association 8 million Americans are delinquent on their credit card debt.
If traditional financial advice was adequate these statistics wouldn’t exist, but they do. The facts are undeniable. People are getting left behind by a financial system that is complex and changing rapidly. Traditional financial advice has not satisfied people’s needs to make smart financial decisions and the results prove it. A new alternative is required, and that alternative is financial coaching.
How Has Financial Advice Caused These Problems?
The financial advice system is built on a business model that profits from the wealth you already accumulated. The problem is that’s not what most people need. Most people want help accumulating the wealth in the first place.
Most of us know what we should do to build wealth and gain financial security. It’s no secret that we should spend less, save more, and invest smarter. We also understand pretty well how we should do these things. The problem is not in the knowing – the problem is in the doing.
It’s one thing to tell people what they should do, and it is an entirely different thing for them to actually do it. People are complex, emotional animals – not rational computers.
Instructing people to build wealth by giving them “how-tos” is like telling the obese to lose weight by eating less and exercising more. Duh, but so what? How does that help anything? They already know what they should do but they aren’t doing it. Similarly, everybody with financial problems already knows they need to spend less, save more and invest smarter – but they aren’t doing it.
“Advice is what we ask for when we already know the answer but wish we didn’t.” - Erica Jong
The real question is how to get someone to do what they really want to do but for some strange reason aren’t doing already. How do you get people to build wealth and attain financial security?That is the domain of financial coaching. A mysterious “something” is keeping people from doing what they already know they should do and traditional financial advice isn’t going to solve that problem. Why?
Because traditional financial advice is about managing existing wealth and selling investment products – not people. It’s all about the money – not the problems people have with money.
Financial advisers have it all backwards. People are the cause of their financial problems, and the products that financial advisers sell are only tools – not solutions. Just as we can all buy the same tools at the local hardware store, we don’t all have the same skills to build a quality home. Different people with the same tools will build radically different homes. Some will come out good and others will be junk.
Similarly, we can all buy the same financial tools from your local broker or financial adviser, but we won’t all achieve the same financial success. People with financial intelligence will succeed regardless of income level, while others without financial intelligence will subsist in financial mediocrity – or worse. The difference is the person’s financial intelligence, and that is the domain of financial coaching.
In essence, traditional financial advice is ignoring the most important part of your financial success – you. If you have a financial problem then you are the reason it exists. You won’t find the solution to your financial problems by looking outside yourself to an investment tool offered by a financial adviser. Instead, you must look inside yourself to your financial and emotional intelligence. Financial coaching does just that – traditional financial advice does not.
How Your Personal Financial Coach Separates “Church and State”
Why should you care that traditional financial advice focuses on investment product sales instead of people? The simple answer is because it creates hidden incentives that limit the depth and breadth of the financial advice you receive.
When you hire a financial adviser or stock broker your implied assumption is s/he is an expert at the investment and wealth building game who will guide you to succeed with your big financial goals like retirement planning, college saving, buying a house, and achieving financial security. That is the pitch the financial institutions sell you on.
Unfortunately, those are your goals – not your adviser’s.
Your financial adviser’s goal is to run a profitable advisory business. That is how he is going to build his wealth – on the back of yours by selling you investment, insurance and other related products to help you reach your goals. To the extent your goals and his are congruent there is no problem. But when your wealth building goals conflict with his business profit goals which do you think will take precedence?
How does this show up? Suppose, for example, you earn good money but your problem is spending too much and saving too little so that nothing is left to invest. Will your adviser work with you on those problems when he doesn’t get paid for those services? Not likely. He gets paid to invest your capital, but he doesn’t get paid to help you create investment capital in the first place. This incentive may limit the scope of his advice.
Suppose you’re ready to invest and your objectives can best be met by a no-fee, no-commission, low-expense product. What are the chances that a product which generates no revenue for your financial adviser will be part of your financial plan when competing, higher fee products will put money in his pocket? Would it surprise you to learn that many low-expense, no-fee products can’t even be sold by certain financial advisers precisely because they don’t generate revenue for the company even though they may be the best choice for you?
“The survey shows a need to separate payment for strategic financial advice from product advice to remove the potential to link advice to a product – and we are recommending members do that.” - Belinda Robinson
This is not some big conspiracy theory – it is just business. When the broker is in business to sell investment products, then he must sell products he can profit from or he has no business. It is just that simple. It doesn’t matter what is best for your profits – what matters is the broker’s profits which means no fee, low cost, no commission products may not appear in your financial plan even when they may be the best choice for you. This is a blatant conflict of interest.
Suppose your financial problems stem from a lack of earnings: you simply don’t make enough to realistically reach your goals through normal saving and investing channels. Will your broker work with you on higher leverage activities to increase your earning capacity such as building a business or direct ownership of real estate when he can’t sell you these products and profit from it? Not likely.
It is very dangerous to mix the education component of finance with the investment product sales component. When the same person teaching you investment strategy stands to profit from selling you the tools to implement that strategy, there is a high risk that the advice you receive will be tainted with bias and limited to only those things that can be sold. It is just business.
The rule is simple. You must always separate out the investment strategy and education component of your wealth plan from the investment product sales component and pay for each separately. Financial coaching can educate you on your wealth building strategy without the bias of selling you an investment product.
The purpose of this rule is not to bad-mouth stock brokers and traditional financial planners. They serve a useful and important function by selling and distributing some of the investment tools that might be useful on your journey to financial security.
However, buying investment tools is not going to solve the financial problems most people face. This is proven by the fact that all the investment tools anyone could need have been available for many years and people are not reaching their financial goals. Something more is necessary.
What most people need is a clear roadmap with step-by-step instructions along with a coach to help them overcome their personal road blocks that hold them back from earning more money, controlling expenses, and investing smarter.
You need someone on your side whose only interest is to help you – not sell you. That is the advantage of financial coaching.
The Advantages of Personal Financial Coaching
Financial coaches work with much more than just investment products and investment “how-to” tools. They work with you. That’s because your path to financial freedom will be unique to you, and the obstacles you must overcome will be yours alone to face.
If financial freedom is your goal then it is critical to find the right path uniquely fitted to your needs among all the wealth building paths available. This requires a more comprehensive model that fills in the pieces to the puzzle left vacant by traditional financial advice. After all, there is no point in putting you on a particular path to wealth if you aren’t first taught how to get on the path and stay on the path long enough to succeed.
Financial coaches are educators and mentors rather than investment product sales people. Financial coaching can educate you on what works, what doesn’t and why saving you time and money on your path to financial freedom.
|Financial Coaching||Financial Advice|
|Follows the client’s agenda||Follows the advisor’s agenda|
|No specific securities recommendations||Specific securities recommendations|
|Client’s have unique strategies, plans and portfolios||Client’s strategies and portfolios look similar|
|Client becomes expert and own authority||Advisor is authority|
|Relationship creates independence||Relationship creates dependence|
|Client is accountable and responsible||Advisor is accountable and responsible|
|Asking questions and educating||Telling directions|
|Focuses on learning and growth of client||Focuses on financial product sales|
|Goal is to create a fully functional, educated, independent client||Goal is to create a portfolio for a dependent client|
|No investment product sales||Sells investment products|
|Teaches self-responsibility||Takes away self-responsibility|
|Paid for eliciting, educating, expanding, and supporting client’s whole financial success||Paid for portfolio advice and transactions.|
|Draws out client’s values, skills, and knowledge||Imposes advisor’s values, skills, and knowledge on client|
|Client centered||Product centered|
More Benefits of Financial Coaching …
Financial coaching provides a structured and collaborative environment in which you can not only expect financial growth but personal growth and performance improvement as well. Clients frequently state that many other aspects of their life improve along with their financial picture when coaching.
Personal financial coaching promotes self-discovery, improved focus, and a renewed openness to taking more effective actions. Through financial coaching you can develop improved self-confidence and mastery over your financial security. The result is a more successful, capable and independent you. Click here to see what previous clients say you can expect from financial coaching.
“No one wants advice, only collaboration.” - John Steinbeck
You don’t need to walk the journey to financial freedom alone. You can avoid many of the obvious mistakes and accelerate your progress with the support of your personal financial coach – and without many of the conflicts of interest inherent in traditional financial advice.
In summary, the difference between financial coaching and financial advice is simple. Financial advice wants to manage your wealth by selling you a fish; whereas, financial coaching mentors and supports you to build wealth in the first place by learning how to fish so that you can independently get all the fish you want for the rest of your life.
If you would like to try financial coaching for yourself click here to learn how to get started.
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