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?