It is now more important than ever to invest your personal income wisely-with the elimination of pension plans and uncertainty around Social Security, most of our future selves are depending on it. But for entrepreneurs, it can be critical. You already have so much risk in one basket; investing provides much needed protection by helping to secure your financial future side by side with your business.
I'm going to go out on a limb and say that unless you founded a money or finance-based business, you probably didn't become an entrepreneur because you were dying to work with numbers. You're likely an expert in the service (or product) your business provides and hired a seasoned professional to handle your investments. But do you really know what investments you've made or where your money is actually going?
Many entrepreneurs would answer no.
Like countless others, I myself am not a numbers person. Only recently did I seek to truly understand how to make the right decisions in this arena; in my travels, I had the good fortune to meet Ben VerWys, the CEO and a Senior Financial Advisor at Action Point. Ben started this firm to offer entrepreneurs a transparent investment experience, so I tapped his brain.
"There's a disillusionment with the financial services industry across the board--mostly because of a general lack of clarity and transparency around fees and costs or under-performance of investments," Ben says. The scary part is, there are literally over 300,000 licensed investment professionals in the US and the majority of "Financial Advisors" are employed by banks, insurance companies, and brokerage firms, many of which are publicly owned, and thus, put shareholder's best interest first (not yours). Plus, they are constantly pushing these commission-based products, whether or not you need them.
As an entrepreneur, you've already chosen an uncertain line of work--so it's obviously important to make the most solid decisions when it comes to your finances. One of the best ways to ensure your best interests are being put first is to hire a fee-only advisor that operates as a true fiduciary. Here, Ben gives us his expert advice on what to be aware of during this process:
1) Cost transparency: Cost transparency is knowing how you pay, how much, and what value you get for that cost. Too many investors feel they have little to no transparency. You should know exactly how much you pay and who you're paying to, including fees, commissions and other investing costs. And costs always exist in some form.
If you don't know how much you are paying, it's too much. Almost all investors need professional help, especially entrepreneurs who don't have the time or knowledge to manage investments well. It's important that you know what actual value is and how it is delivered to you. Your advisor should demonstrate the value they are adding by outlining exactly what you pay, how, and how it will benefit you. And if they can't clearly explain this, fire them.
2) Are you being advised or sold? Many investors hire their financial advisor based on detrimental criteria. Choose your Investment Advisor like you would your Surgeon or CFO because they are that important to your financial success. Many firms are simply large-scale sales forces primarily focused on selling products that make profit for the firm. When it comes to protecting your nest egg and securing your financial future, you need objective advice. Additionally, how much you pay for that advice should be linked to how well it works for you.
3) You have options. Not many, but some. If you want a local advisor in your hometown, many larger cities have at least a few fee-only financial advisors who are lower cost fiduciaries. Additionally, technology allows investors throughout the country to find and hire a firm to work with them virtually. A quick Google search will help you identify those accommodations.
Many busy entrepreneurs put personal investments and their financial future on the back burner. Don't let your commitment to running your business be an excuse for bad financial management. Approach this process the same way you would your startup - Invest and hire wisely.