Why Do We Take Financial Advice From Poor People?

(This is an article from my friend Graham Rowan who's a profound financial speaker/investor. With his permission I thought this is an article worth reading).

One of my favourite mentors was the late, great Jim Rohn. When it came to incomprehensible behaviour, he would refer to ‘the great mysteries of life’. For example, with all the wisdom of the world available free of charge in the local library, only 3% of the population has a library ticket. Why? One of the great mysteries of life.

 Here’s another. When it comes to choosing what to invest in, who do we turn to for advice? That nice young man at Barclays who sits at a desk with a ‘personal banker’ sign? He’s probably on about £17K a year with a bonus for any investment products that he manages to sell. As well as loans, mortgages and every type of insurance. Oh, and he can only sell Barclays’ investment products. He’s probably got spiky hair, the remnants of acne and a negative net worth when his credit cards, store cards and I-phone contract are taken into account. How much will you trust his advice on where to invest your hard-earned life savings?

Or maybe you use the services of an Independent Financial Adviser. He (the vast majority are men with an average age of 58) is regulated by the Financial Services Authority, and thanks to some new rules he will have taken some fresh exams recently to remain kosher. But check out what is covered in those exams. It has nothing to do with finding better performing investments that can be life changing for you and your family. It has everything to do with additional layers of bureaucracy and helping them to cover themselves if anything goes wrong. Interestingly, perhaps because of their average age, many are choosing to leave the profession rather than spend two years studying just to remain in business.

Usually, IFAs receive commission from the investments that they recommend. Occasionally, they charge a fee for their services. Few of them seem to be particularly wealthy. My observation from dealing with a number of IFAs over the years is that they rarely invest in the products they recommend, they often propose products with high charges such as multi-manager funds and their mantra is diversification to reduce risk. Robert Kiyosaki called this ‘di-worsification’.

Think about it. The more you diversify and ‘follow the herd’, the more likely you are to achieve average performance. You can’t follow the crowd and expect better than average results. The biggest fortunes are usually made through focus and concentration. If you own your own business, it may be your most valuable asset. You might find that investing in growing your business gives you the best return of all.

What matters most is that you take personal ownership of your financial future, have a strategy that drives your approach and do your own research into each type of investment.

If you do take advice from anyone, make sure that person ticks these boxes:
· He has already invested in the asset class he is recommending to you
· He is credible in terms of the overall success he has achieved in life
· You have done your own research and are comfortable that, given all the information available to you at this time, this investment makes sense for you.

A simple rule of thumb is – don’t take investment advice from a poor person! Until next week Best wishes Graham Graham Rowan Speaker, Author, Investor This article first appeared in the Wealth Watch newsletter in March 2012. If you'd like to receive Wealth Watch to your UK address each month please register at www.WealthWatch.tv