Determine Your Money Management DNA

“Capital isn't scarce; vision is.”—Sam Walton

When you hire a financial planner, you should be aware of the red flags that planners look for when taking on a client. Planners fire their clients for several reasons—if you see yourself in the following list of bad habits, you may heading for trouble with your financial expert.

• Do-It-Yourself Syndrome—If you want to annoy your financial planner, pay for his/her advice and then do whatever it is you wanted to do in the first place. One of the most common ways to do that is to ignore the planner’s conservative counsel and take flyers on risky stocks instead. If you don’t plan to follow the advice you get from your financial guru, don’t waste money paying for it.

• Beat-the-Market Syndrome—You shouldn’t trust a financial planner who promises outsize returns on your investments. The flip side is that reputable financial planners shun clients who expect them to beat the market or to make money when markets are down. Keep your expectations in line with historical norms and you’ll have a more comfortable relationship with your planner. The average long-term return on stocks, for example, is between 8% and 10% a year, not the 20% annual return the market achieved in the glory days of the mid-1990s.

• I’ve-Got-a-Secret Syndrome—The more your advisor knows about you, the better the advice will be. Your financial plan should be custom-tailored to fit your lifestyle and financial outlook. A plan for a 35-year-old doctor with a growing family will be much different from the plan for a 55-year-old whose children are grown and on their own. Your spending habits, your assets and liabilities, and your investment goals are all part of the mix that makes up your individual financial plan. If you’re not going to share these facts with your advisor, the resulting financial plan may be badly off-base.

• I-Don’t-Follow-Advice-Well Syndrome—If you can see the wisdom in a planner’s advice but can’t carry it out, you’re going to have a difficult relationship. If you balk at selling stock losers to offset gains on winners, for example, you may be left with a big tax bill you could have avoided. Similarly, your planner may show you the door if you resist paying off 18% credit-card debt with money from a bank account that pays 2% interest.

• Overspending Syndrome—Many financial plans get torpedoed because clients can’t control their spending. Financial planners aren’t psychologists—they can’t solve the problem, even though many clients expect them to. If your outgo overwhelms your income, you need to get a handle on that. Until you do, no amount of financial advice can help you. A reputable financial planner will tell you this as soon as he/she recognizes the problem. Not-so-reputable planners will take your money and give you a plan that won’t work until your spending is under control.