In my part of the U.S, the month of April means rainstorms and changing temperatures. It also traditionally means the annual ritual of filing individual income tax. Turns out, April is really a good time to shine a light on your total financial picture, not just your taxes, because April is National Financial Literacy month (or otherwise officially known as National Financial Capability Month since Obama’s proclamation in 2017).

Financial Literacy Means

Finances are complicated, to say the least, and being financially literate, like being literate in general, takes time, dedication and the right education. To be literate is to be able to comprehend, communicate, and apply written information. Branching off from that definition, being “financially literate” means to be able to comprehend, communicate, and apply financial information. (And hopefully, applying that information to lead to a better financial picture; that’s the goal.)

Being “financially literate” means to be able to comprehend, communicate, and apply financial information.

Generally speaking, most financial planners and other professionals agree that financial literacy means having a good understanding of the following money practices:

• earning
• saving
• investing
• borrowing
• protecting

Growing Your Knowledge (and Money)

Once you have mastered the money basics you might want to go further on your personal financial literacy journey and become a sophisticated investor–there are definite advantages to being a sophisticated investor. In my post, “Winning Accredited Investor Status: Let Me Count the Ways,” I go over the ways to becoming an accredited investor and why this is so important for your future financial life.

There are lots of common and popular ways to up your understanding of money, too, in the meantime: subscribing to financial newsletters, listening to finance-related podcasts, or joining an online group or investment club, to name a few. Reading personal finance books* is of course a great one. These are basically DIY-style educational scenarios that do not give you 1-on-1 personal advice.

Going Forward: Needing and Wanting More Advice

What if you are at the point that you need to talk things through with a professional to steer your finances further in the right direction? How do you determine what and who is right for you and your situation? Is Robo investing just as good as talking to a real person? How do you evaluate what is good (up-to-date, appropriate, and detailed) information?

My social media feeds are literally inundated with plugs for various financial coaches, advisors, and organizations. Finding worthwhile information sources is crucial–and you must be able to figure out how to weed out the bad (damaging) from the good (reputable and positive).

Going Live: Seeking an Advisor

1- Education is One Key

One good place to start is to look to the source and do your due diligence before even talking to an advisor. Start with understanding the different certificates and qualifications, and then evaluating the specifics of a potential advisor.

ZoeFinancial is one online clearinghouse platform for financial advisors, specifically those with Certified Financial Planner (CFP®), Certified Public Accountant (CPA), and Chartered Financial Analyst (CFA®) designations. According to their site, they reject 95% of their applicants right off the bat.

ONE CAVEAT: This creates a pretty steep starting point (which is not necessarily bad) and while it does eliminate both unqualified advisors, it might also exclude advisors with different educational backgrounds and (legitimate) financial experience that might be perfect for you.

NOTE: fees vary by advisor and advisors must pay an ongoing fee to Zoe Financial for each client and to remain on the platform.

2- Checking Up on Your Broker

I like to use Brokercheck, a free service from FINRA (the independent, non-governmental securities firms regulating body in the United States) and I have noticed that more and more advisors and their firms are incorporating it into their site.

You can also run a check to see if your potential broker has been barred by FINRA (permanently barred from associating with any member in any manner or capacity). The list is updated every month and is currently good through January 31, 2022. Broker firms or individuals who have been barred due to a disciplinary decision or an expedited proceeding are NOT on the list if a decision is pending and not final (yet).

Also see Monthly Disciplinary Actions here.

3- Keeping Your Data Secure

More and more, part of having good financial literacy involves not only how your money is being invested but also where it is all times.

IF you are going to use an advisor, and especially one from a smaller firm, make sure that they are actively practicing safe data practices. NOTE: IF a potential advisor cannot explain or describe the data security methods they are using to your satisfaction, do not hand over your financial information to that person (or firm).

IF a potential advisor cannot explain or describe the data security methods they are using to your satisfaction, do not hand over your financial information to that person (or firm).

Barriers to Getting Good Financial Advice

Interestingly enough, the affordability barrier isn’t necessarily the only or most important obstacle to getting help. Several personal factors that you may (or may not) be aware of, like gender, race, and immigration status can create issues in developing trust with a financial advisor or getting the best service. These and other factors can affect the kind of help you might seek or the kind of answers you might receive.

Gender

For example, there is a disproportionate amount of white male financial planners in the field. This causes problems as a recent study analyzing the effects of race, gender, and trust found that participants were more likely to trust female financial planners than male financial planners. And, female participants were more likely to trust financial planners in general than their male counterparts, but placing too much trust too soon, or placing trust with someone who has not earned it might not be a good thing.

Immigration Status

A Colombian-American financial advisor based in Florida has found that selecting a financial planner is often confusing for many immigrants. Planners often make assumptions about the amount of investable assets a potential client has to invest. She also found by talking to her clients that having a foreign accent is often used by planners to dismiss a client unfairly.

Internal Time Pressures

When dealing with a pressing matter or newly secured larger assets, clients often run the risk of placing their money in the hands of an advisor who doesn’t suit their specific needs, clashes with their personality or closely held values. This issue can apply even if you are using a robo advisor service: remember to think through your decision and do not pull the trigger before you are really ready to invest.

Going Automatic: the Robo-Advisor Route

Looking at the kinds of issues you might have with a live person, perhaps the best thing about using robo-advisor is that you are not dealing with a person at all. Most brokerages now offer this kind of service. Generally, these are low-cost offerings (with some notable exceptions like Rebalance and Personal Capital, for example) with low minimums and have advantages for busy people who might not invest at all if left to their own devices.

Some brokerages combine a human approach with an automated (AI) one. Some are entirely automated. Basically, these services are based on modern portfolio theories and are executed relatively flawlessly. Rebalancing and tax loss harvesting can be done as part of the package, with some restrictions (do note any trade fees associated with buying and selling frequently, as robo-advisors may do this often.)

There are several issues with using this kind of service and the subject deserves its own post or two. Basically, one main issue is these are not tools for personal financial planning; they are best used in conjunction with as part of a sound financial plan. Robo-advisors do not take into account your entire financial plan and goals very effectively, or in ways that a good financial advisor would. Another issue with using a robo-advisor is that certain investing methods are not allowed, such as selling call options. There are also restrictions on account size, portfolio models, and whether tax loss harvesting is included or a separate feature.

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This post is part of the April 2022 Movement on Financial Literacy. The Plutus™ Foundation Impact Series highlights articles, podcast episodes, and videos from participating content creators on a different theme every month in 2022.

Disclaimer: All the information provided above and on this site is for informational purposes only and should not be considered as professional investment, legal, or tax advice (or scientific advice). You should conduct your own research or consult with a professional financial advisor when investing.