The best relationships are based on honesty and trust. That’s true for your personal relationships as well as your relationships with professionals who help you with your problems. You shouldn’t keep your symptoms a secret from your doctor, and you shouldn’t withhold pertinent information from your lawyer. Doing so can lead to unfortunate consequences. This same idea applies to your relationship with your financial advisor.
10 Things You Should Never Hide from Your Financial Advisor
You must be upfront and honest. Here are the top 10 secrets you should never keep from your financial advisor.
1. “I bought a new house/car.”
“Once of the worst secrets you can keep from your financial planner is a major purchase,” said Chloe Moore, founder of Financial Staples. “Some purchases, like a house or car, can add to your debt load and have a significant impact on your monthly expenses. A financial advisor is there to help you think through major decisions that affect your finances. They can also detect blind spots and help you avoid money mistakes that can take years to recover from.”
2. “I’m thinking of divorcing my spouse.”
“Oftentimes, if a couple is going through a very hard time and considering a divorce, their financial advisor may not be top of mind as someone to reach out to and loop them into the situation,” said Sara Rajo-Miller, financial advisor and director at Miracle Mile Advisors in Los Angeles, California. “However, divorce can have a meaningful impact on your assets, and it is crucial to make sure your financial advisor knows what is going on. A properly constructed financial plan takes things like prenups, trusts, wills, and beneficiary designations into consideration. This makes sure that your assets are properly titled and protected and that they go to the people you want them to go to.”
3. “I have a lot of credit card debt.”
A few thousand dollars here and there on credit cards might seem irrelevant if you’re able to make the minimum payments, but the cost of this consumer debt can be astronomical over time. For example, it could take you about 30 years to pay off a credit card with a $10,000 balance and 20% interest — even if you pay the minimum monthly amount. Plus, at the end of that time, you will have paid $16,000 in interest to the bank.
“Make sure you fill your advisor in on all kinds of debt so they can structure an efficient pay down plan that tackles the debt with higher interest first,” said Rajo-Miller, adding, “A lot of people think that all debt is bad, but that isn’t the case. There is a big difference between a low interest rate mortgage and high interest credit card debt. Make sure you fill your advisor in on all kinds of debt so they can structure an efficient pay down plan that tackles the debt with higher interest first.”
4. “I have health issues.”
“Health and personal wellness can be a very private issue that people don’t want to or don’t think they need to bring up with their financial advisor,” said Rajo-Miller. “While you don’t need to disclose every part of your health history, it is important to keep your advisor in the loop with any major health issue that could impact your life span. When advisors are running your financial plan, they are operating under assumptions. While no one can predict how long you will live, there is a big difference between assuming that someone will live into their 90s versus someone who knows they have a serious health issue that will likely shorten their longevity. There could also be a need to plan for additional medical expenses, and it is important that your advisor correctly includes these costs in your plan.”
5. “I carry large deductibles.”
Many people have recognized that carrying large deductibles can keep home and auto insurance as well as health insurance premiums low. During your meeting with your financial advisor, they should ask why you’re carrying large deductibles, but if they don’t, let them know that having this level of liquidity is important. You don’t want to have to surrender a variable investment on a down-market day.
6. “I don’t fully understand risk.”
A good financial advisor will know their client’s risk tolerance. But unfortunately, some clients agree to a more aggressive portfolio design that they don’t fully understand. Never be timid to ask questions. It’s your money, and you’re paying for the advice in some fashion. Don’t walk away from your hard-earned money without knowing how it’s going to be handled — especially in volatile markets.
7. “I don’t have a will.”
Most states have intestacy laws. Intestacy is the situation created when a person dies without a will. If a person dies without a will, the estate passes to heirs under the state’s intestacy laws, which might not be aligned with the deceased’s wishes.
Keeping this information from your financial advisor can lead to legacy issues and cost the estate money in fees and administrative costs that could have been avoided. Consult a qualified attorney along with your advisor to address the details or your needs and desires.
8. “I have an overspending problem.”
A financial plan should include a spending plan, or what others call a budget. The concept appeals to the idea that some see the glass half full while others see the glass half empty.
Admit during your meeting with your financial advisor that you don’t handle money well so that they can draft up a plan that can help you learn how to spend and save money. With their help, you should be able to get out of debt or even save enough money for a future purchase you’ve always wanted.
9. “I have other assets.”
“Sometimes people think they don’t need to tell their advisor about certain assets,” said Rajo-Miller, financial advisor and director at Miracle Mile Advisors in Los Angeles, California. “Perhaps it’s a smaller personal trading account, an emergency fund with cash or something more obscure like an art or jewelry collection. Keeping these assets from your advisor can lead to unintended overlaps (i.e., you may be buying stock in your personal account that your advisor is simultaneously selling in your managed account) and can also make it very difficult to manage your estate if something happens to you. We have seen messy situations where beneficiaries are trying to get an understanding for all the assets that were left behind and often these were not tilted correctly and did not have clear beneficiaries on them.”
10. “I don’t think I pay enough in taxes.”
A person who gets a tax refund sometimes sees this as a windfall or that they don’t pay too much in taxes. But a tax refund is normally the money they paid in and doesn’t mean they pay the least amount available.
Your advisor should review your income tax situation annually, but volunteer the information if they fail to bring it up. Also, don’t assume that your taxes can’t be reduced; assume the opposite until proven differently.
While your financial advisor doesn’t have to know everything about your life, he or she does need to know mostly everything concerning your finances, including any decisions you may make that will impact them. The best thing to do is find a reputable financial advisor who inspires you to build trust with him or her. Then, disclosing your financial information and decisions will be much easier.
Cynthia Measom contributed to the reporting for this article.
Miracle Mile Advisors LLC (“MMA”) is a registered investment advisor. Advisory services are only offered to clients or prospective clients where MMA and its representatives are properly licensed or exempt from licensure.