How to Avoid Financial Hacks

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I’m not a big believer in what have become known as #lifehacks, but that’s not what I’m talking about.

One of Seth Godin’s recent posts is entitled, “Professionals, hacks, and amateurs.” It’s super quick read. I’ve linked to it above in case you haven’t visited Seth’s blog before, but it’s so packed with truth that I’m going to copy the entire thing below:

“The differences have little to do with skill, and a lot to do with resolve and intent.

The amateur contributes with unfiltered joy. There’s really no other upside–create your work because you can, because it helps someone else, because it makes you feel good.

The professional shows up even when she doesn’t feel like it. The professional understands the market, the customer and the price to be paid for work that’s worth paying for. But the professional isn’t a hack.

A hack is a professional who doesn’t care.

The hack has been beaten up enough times that he has emotionally disconnected. The hack has a short-term view, able to do what the client asks, without regard for how it will impact the culture or his long-term prospects.

Serviceable is for hacks. Memorable and remarkable belong to professionals and hard-working amateurs.”

This advice applies to all sorts of professions, but it’s especially applicable to financial planning and investment management, where hiring the “hack” can cost you untold amounts of money and add stress to your life exactly where a professional should be helping to reduce it.

How can you identify the “hack?” Fall back on the two questions that I recommend everyone ask any financial services professional they’re considering working with:

1) How are you paid?

2) What will I pay, in total fees and other costs, as your client?

The answer to question one should allow you to identify the hacks, as defined by Mssr. Godin: the folks who are looking for the next commission, always playing the short game, unconcerned about their clients’ long term well being. When evaluating a financial advisor, the answer to question two is also especially important, because while we can benefit greatly from the “magic” of compound interest, we can lose significantly as well to the tyranny of compounding costs.

The hack advisor will be happy to take ever increasing fees from their clients as their clients’ savings and investments grow in value. The professional will look to give their clients the best service possible, at a reasonable fee.

The happy amateur sits at the crossroads, doling out information that they’re excited to dig into and share. Despite my career in finance beginning a few short summers ago in 1991, I learn something almost every day from the diligent amateur bloggers & podcasters of the financial independence and “FIRE” movements, to name a few.

If you’re searching for help with your finances, the amateur world is a great place to begin. I was personally introduced to the FIRE movement by listening to the ChooseFI podcast, and especially enjoy Earn & Invest as well. Those two can be gateways to massive amounts of valuable information.

If, however, you’ve decided to enlist the help of a financial professional with planning and investing, please do your research and avoid the hacks. Your retirement will thank you.