Declare Independence From Your Financial Advisor

Thomas Jefferson might have put it this way: “I hold this truth to be self-evident: If you invest in the pursuit of happiness, it's your right and duty to throw off your ties to your broker.”

In the spirit of Independence Day, now more than ever, you need to take a close look at your relationship with your financial advisor. If the advice you're getting from your broker isn't worth what you're paying for it, you really owe it to yourself to take hold of your own destiny. It might prove to be the one move that makes you rich in the long run.

Self-evident advice
Take a look at some of the "advice" that passes for insightful commentary on Wall Street:

Goldman Sachs (NYSE: GS) added General Motors (NYSE: GM) to its "Americas sell" list -- after shares had dropped from a 52-week high above $40 to around $15.Goldman also put Citigroup (NYSE: C) on its sell list -- only after Citi's stock had reached its lowest levels in almost 10 years.After seeing airline stocks like UAL (Nasdaq: UAUA) and Continental Airlines (NYSE: CAL) plummet under the weight of high fuel costs, S&P finally got around to giving them a negative rating late last month.

With timely, actionable guidance like that, is it any wonder you're losing money in the market?

What your broker should do
When the market does well, most people don't care much about what their broker does. As long as shares of everything from obscure emerging-market companies to bellwethers like Caterpillar (NYSE: CAT) and Costco (Nasdaq: COST) go up, you'll probably be happy with the gains you see in your portfolio.

But as the market has turned south, it's easier to find fault with your broker's advice. After all, nearly everyone is seeing losses in their portfolios. If your broker has dodged the bullet so far, then you're one of the few lucky ones out there.

More important than absolute performance, though, is the way your financial advisor works with you. In simplest terms, your broker shouldn't just feed you recommendations and expect you to act on them mindlessly. Instead, a good advisor takes the opportunity to teach you the reasoning behind those recommendations -- giving you the ability to make an informed decision.

Why it doesn't happen
Taking the time to explain a financial plan is tough for financial professionals, who usually have sales quotas to meet and employer expectations to manage. There's constant pressure to find new customers, which necessarily reduces the amount of time brokers have to work with their existing clients.

But if you're not getting everything you should from your broker, you have to take part of the blame yourself. When you pay for financial advice, you have an inalienable right to understand how your advisor came up with those ideas -- and to have any concerns addressed. Unfortunately, many people simply never assert themselves to get the service they deserve from their brokers.

Today is your July 4th
If you want to learn to invest on your own -- and I think every responsible adult should know how -- then a good financial advisor can teach you the tools you need to make your own investment decisions. Over time, as you gain more knowledge and get more comfortable with the workings of the market, you can decide when to take off the training wheels and go it alone.

For too long, brokers have profited from the willingness of their clients to be completely dependent on them for their financial well-being. But you don't have to go along with that. By declaring independence from your advisor, you can ensure that you'll be able to fend for yourself and prosper.

Copyright © 2008 Universal Press Syndicate.