Financial advisors may not always share the full picture when it comes to managing your money. Advisors often overlook alternative wealth-building strategies due to a lack of knowledge or a conflict of interest. There are a myriad of excellent financial strategies available that you should be aware of. This article will uncover the things your financial advisor might not be telling you and how you take better control of your financial future and make better-informed decisions.

1. Hidden Fees in Products

Variable annuities and mutual funds often carry layers of hidden fees, including management expenses, administrative costs, and surrender charges. These fees, which can range from 1-4% or higher, significantly reduce your investment returns over time. Many advisors don’t emphasize these because they earn commissions from such products. I once worked with a client that was losing money every quarter during a bull market. I looked at the client’s statement to discover that all of the gains were being lost because they were going to the advisor because he had her in products laced with outrageously high fees. There are countless examples of advisors putting clients in awful products just to make huge commissions. This is the unscrupulous part of financial services. Understanding all fees is key to maximizing your returns.

2. The Wealth-Building Potential of Cash Value Life Insurance

Cash value life insurance, like whole or Indexed universal life insurance, builds up a savings component that grows tax-deferred. This cash can be borrowed against tax-free for retirement, emergencies, or large purchases. Although traditional investments are usually favored for growth, life insurance offers financial flexibility and guaranteed growth while also providing death benefits, which many advisors may overlook when presenting wealth-building strategies. For business owners, the flexibility is unmatched and can solve a multitude of business planning objectives.

3. Self-Direct Your IRA

Most advisors limit you to traditional IRAs that offer stocks, bonds, and mutual funds. However, self-directed IRAs allow investments in real estate, private businesses, and other alternative assets. Self-direction gives you the freedom to diversify outside conventional investments, potentially offering higher returns or hedging against market volatility. While more complex and requiring careful management, the flexibility of a self-directed IRA can significantly enhance your portfolio.

4. Invest in Your Business—Your Greatest Asset

If you’re an entrepreneur, your business is often your most significant financial asset. Rather than solely focusing on external investments, you should consider reinvesting in your own enterprise, where you have control and knowledge. Whether through expanding operations, upgrading technology, or hiring talent, investing in your business can offer higher growth potential and substantial tax incentives compared to traditional stock market returns. Advisors may not highlight this because their services tend to focus on financial products rather than entrepreneurial growth.

5. Rental Properties Offer Leverage, Tax Benefits, and Wealth Building

Real estate investments, especially rental properties, allow you to leverage other people’s money (mortgages) to grow your portfolio. Rental income provides a steady cash flow, while tax deductions on mortgage interest, depreciation, and other expenses help reduce your taxable income. Over time, property appreciation can result in substantial wealth building. Advisors may not push real estate investments because they typically don’t earn commissions from real estate transactions, leaving you to discover this wealth-building tool on your own.

6. Tax-Deferred Accounts Aren’t Always the Best Option

Tax-deferred accounts like 401(k)s and traditional IRAs are often promoted for retirement savings, but the taxes you pay upon withdrawal can be higher if future tax rates increase. A financial advisor might not emphasize the value of incorporating tax-free or tax-efficient investments, such as Cash Value Life Insurance, Roth IRAs, or municipal bonds, into your portfolio.

7. They May Have Conflicts of Interest

Some advisors earn commissions on the financial products they recommend. This means they could be incentivized to sell you certain investments such as mutual funds or variable insurance products, which may not always align with your best interests. As previously stated, I have run across countless examples of this when working with clients. Independent, advisors are less likely to have these conflicts. Ask your advisor whether they are a fiduciary or have a series 7 broker’s license. The term financial advisor is often thrown around. More often than not, it’s just a fancy term for someone selling financial products. Make sure to ask more than just investment questions to find out who you are working with.

8. You Need a Comprehensive Financial Plan, Not Just Investments

Many advisors focus solely on your investments, but a holistic financial plan should include strategies for tax planning, estate planning, debt management, and insurance coverage. What good is building wealth if you’re at constant risk of losing it from a legal battle, market crash, health risk or an economic meltdown. Without this, you might miss out on key aspects of wealth-building and protection.

9. Your Retirement Savings Might Not Be Enough

It’s easy to assume that saving a set percentage of your income or hitting certain retirement account milestones will be enough. However, your financial advisor might not be telling you that you could need more savings than expected, especially given inflation, rising healthcare costs, and increasing longevity. If inflation continues to rise rapidly, you may need significantly more income in retirement than you have planned for. Planning for these factors is crucial for a secure retirement.

10. Your Overall Financial Risks

Financial advisors typically just look at your risk tolerance in regards to market conditions and building a portfolio. Unfortunately, there’s even more financial risks that you need to be aware of. You need to know about sequence of returns risk as market conditions change or as you near retirement. This could result in your portfolio being too aggressive when you enter retirement and taking out too much income early on during a market downturn, limiting growth potential needed later on to sustain your standard of living. In addition to market risk, there’s also tax risk, inflation, health risk, longevity risk, and political risk.

Tax risk is important because if your entire retirement savings is in tax deferred accounts and taxes rise significantly, you may lose a lot of your retirement savings resulting in a lower standard of living. Inflation has a similar effect on investments. It’s a hidden tax that you can’t see, but it’s there. If all of your money is sitting in savings accounts and CDs earning less than 2% and inflation is at 4%, you’re losing money due to less purchasing power. Bond investments are especially influenced by interest rates and inflation.

Health risk is the rising cost of health care. The cost of health care is increasing at twice the rate of inflation. Even with insurance, health care could cost you a lot more money and eat into your savings as you age. Health risk also includes the risk of needing long term care in a facility. Over 60% of individuals will need some type of long term care as they age and it is very expensive. Longevity risk is the risk of living longer than expected and outliving your savings. If you’re a business owner, there’s even more risk that you need to be concerned with. Check out Financial Risks Every Business Owner Should Know.

Conclusion

While financial advisors can provide valuable guidance, it’s important to be aware of what they might not be telling you. Hidden fees, overlooked investment strategies, and potential conflicts of interest can all impact your financial success. By staying informed and asking the right questions, you can ensure that you’re making the best decisions for your wealth-building goals. From managing risk to diversifying your assets, it’s essential to take a holistic approach to your financial planning. Ultimately, the more you know, the better positioned you are to secure a prosperous financial future.