Categorized | Investing

Drawing the Line Between Family and Financial Advisor

Choosing a financial advisor is an important decision which shouldn’t be taken lightly. There are a multitude of factors you should consider before you decide on who will be helping you on your road to retirement and financial independence.

In some cases you may know someone or be related to someone who is in fact a financial advisor. You may even be tempted to solicit them to be your personal advisor to handle your retirement and estate planning needs. Take it from me, you don’t want your friends or family handling your finances, or any other part of your life.


The Financial Advisor Relationship

The relationship of you and your advisor should be that of an employer and employee. You are paying for the advisor to provide a service and you should expect that service to be top notch. When you allow an insider to assume that role, they will know that you are their family, or friend, and they can get away with less explanation and less personal service. They want to focus on the clients they feel like they could lose, not the one they know will "always" be around regardless.

If the "advisor" happens to be a relative of you or your spouse it adds an additional level of complication. If the advisor makes a suggestion that one of the spouses doesn’t agree with then the related spouse could get defensive or even combative to defend their relative. I am personally struggling with this situation around an Equity Indexed Universal Life Insurance (EIUL) account my Mother in Law set my wife and I up with. Neither my wife or I truly understand the product but because it is her mother she inherently is trusting that it is what is best for us.

You don’t want to have to question the motives of someone you care for, but you will. Every time my "advisor" sends me a new product pitch or wants to move my funds around in my 401k, I ask myself why? She doesn’t explain the why to me because I am expected to just agree and nod my head. For all I know it is purely to generate commissions with little to no concern about my true financial well being. I doubt this is the case but the fact that I question it internally makes me nervous. I don’t want someone working for me who doesn’t explain the why behind their actions. This should go for any financial advisor.

Choose Your Options Carefully

Just like when starting a business, you shouldn’t work in this nature with family or friends. It puts undue strain on your relationship. Why create tension where there would otherwise be joy. You don’t want to look at your buddy with disdain because he sold you on a bad investment. there is chance that if you fire him as an advisor you could lose him as a friend. You don’t want to be in that situation. You definitely don’t want to be in a position where you have to fire your mother in law.

Instead of hiring your family member or friend to be your advisor ask them for a recommendation of someone they trust who will treat you fairly and not charge you outrageous fees. Explain that you are sure they are great but you would prefer to have a level of separation between you and your advisor. You could even add in that you don’t want them to feel responsible if your retirement goes to pot.

No matter how you get out of it it will be better for everyone involved if you keep business and family/friends separate

Have you ever used a family member or friend as your financial advisor? How did it turn out?

Get to know the author!

Kyle runs Suburban Dollar and has a passion for finance, saving, and debt reduction. He has a no true background in accounting, finance, or economics which allows him to bring an ordinary perspective to the world of finance. As he says on his blog it is where finance and reality meet. If you like what you have read here please subscribe to his blog for future free updates from Suburban Dollar.

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15 Comments For This Post

  1. Mike Piper Says:

    I suspect that a big part of the issue is due to using a financial advisor who is paid via commission. That causes conflicts of interest regardless of whether you’re related to them or not.

    If you use an advisor who is paid only via an hourly fee, you’ll never be wondering if he/she recommended something just because it pays best.

    That said, you make good points about choosing sides between spouses. That could still come up with a fee-only advisor.
    .-= Mike Piper´s last blog ..Review: The New Coffeehouse Investor =-.


    Kyle Reply:

    @Mike Piper, That is the other part, she has never really said if she is actually getting paid off our transactions. I assume she is and I am certain it is commission based since we have never paid her a fee. She also sold us an insurance product I am certain she made a pretty penny on.
    .-= Kyle´s last blog ..Base Salary Isn’t Everything =-.


  2. Craig Says:

    So far I have not taken any financial advisor and am going on my own. I figure if I start saving now I can worry about specifics down the line when I educate myself more.


  3. ctreit Says:

    Hiring an advisor from your own family is almost like working with a therapist who is part of your family.
    .-= ctreit´s last blog ..Does your family budget have room for a PupStep Plus? =-.


  4. Financial Samurai Says:

    I just don’t understand why someone would pay someone to tell you “spend less than you earn.” How difficult is that? I can’t imagine someone can’t get free advice from books/online on asset allocation, budgeting, and saving.

    Unless you have at least several hundred thousand i assets, and multiple businesses, I’d save your money and find free help from willing people.
    .-= Financial Samurai´s last blog ..A Weak US Dollar Doesn’t Matter Folks! =-.


    Kyle Reply:

    @Financial Samurai, You aren’t paying someone to tell you spend less. In most cases you are paying someone to help you understand what investments will help you to best achieve your goals. I know very little about investing and markets so it helps to have that resource, I just wish it wasn’t family.
    .-= Kyle´s last blog ..Create a Home Inventory and Save Your Stuff =-.


  5. Credit Card Chaser Says:

    I would stick with a fee only planner instead of someone compensated by sales commission. Granted that most insurance products that is just the way it has to be because that is how the products are designed but the person who is doing the overall planning should be compensated with a fee rather than a commission IMO.
    .-= Credit Card Chaser´s last blog ..Chris Dodd Indirectly Wants to to Make it Harder to Get a Credit Card =-.


    Kyle Reply:

    @Credit Card Chaser, I agree, the best option is to utilize a fee only planner. That way you know what you are paying up front and you don’t have to question weather or not every reallocation was necessary or if the advisor was just trying to make a quick buck.
    .-= Kyle´s last blog ..iPhone App Review: Home Inventory =-.


  6. Kim Says:

    My Mother had a wonderful financial advisor but chose to pay no attention to his advice and consequently is now broke. He was a fee only planner and had managed my parents finances flawlessly for twenty years. He did everything he possible could to take control of my mothers spending but no amount of sound advice is going to help if you choose to ignore it! Very frustrating for my family!
    .-= Kim´s last blog ..Loft Beds for Kid’s =-.


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  8. les Says:

    You have to be so carefull with who you use as an advisor, there is so many with there own agenda, looking at their commission before waht is best for you, tread carefully


  9. Review Engine ROI Review Says:

    After I initially left a comment I appear to have clicked on the -Notify me when new comments are added- checkbox and from now on every time a comment is added I receive four emails with the exact same comment. Perhaps there is a way you are able to remove me from that service? Thanks!


  10. Aram Durphy Says:

    Even with a fee-only financial advisor, choosing family or friends offers risks to your personal relationship. The nature of markets is volatile, and it can be tough to have a beer with your advisor friend, when your portfolio just took a big hit.
    Aram Durphy´s last [type] ..How To Find The Right Financial Advisor


  11. Financial Planner Virginia Beach VA Says:

    I think it’s a biggest decision for choosing of a right financial advisor. If you choose your family member that may affects on your personal finance and economy. So it’s better to choose top financial advisor who will show you the right direction.


  12. Supaya cepat hamil Says:

    This is the perfect blog for anyone who wants to know about this topic. You know so much its almost hard to argue with you (not that I really would want…HaHa). You definitely put a new spin on a subject thats been written about for years. Great stuff


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I'm MLR. After graduating from college debt free, I decided to write a blog encouraging people to adapt responsible and sensible personal finance rules.

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