Financial information is the fundamental building block for making good financial choices. However, you must know what to look for in order to effectively use the millions of pieces of financial information available. Financial information includes things like a mutual fund prospectus or an insurance contract or stock and bond prices in the newspaper.

In the electronic world of the Internet, even more information is available. With the help of "search engines" you can quickly find your way to the information that you want. So, if you know what you need to find out, electronic information is extremely useful.

If, on the other hand, you don’t know what the right questions are to ask, or the right piece of information that you need, or if you don’t know what you don’t know, then you need financial education.

Financial education can be broad-based, encompassing the hundreds of thousands of financial alternatives available. This is a time-consuming process and many people would rather spend their time on other things. Instead of trying to learn about all the possible choices, most people rely on experts to select the best alternatives for them and then learn only about these.

The selection of the best alternatives can be risky unless you trust the person doing the selection to look out for your interest. Learning all about a set of bad alternatives will not help. The selection of alternatives is more important than which alternative is actually used.

Financial advice draws on the knowledge of professionals to select alternatives for you and then provides the information and/or recommendations. Good financial advice always takes into account what your needs or preferences are.

In some cases the knowledge the adviser has about you may be superficial, or it may be quite detailed and intimate. The more information about you that is considered, the more reliable the advice is likely to be. This means that the advice will change as your situation changes.

Like financial information and education, advice is delivered in many forms. The technologically savvy can find and use computer-based advice. Advice can also be delivered over the phone, through the mail, or in person.

Trust is more critical for financial advice than for information or education. Making the right financial decision is not a trivial matter. If you take a wrong turn on the road, you can turn around and all you lose is a little time. A bad financial choice can put your life savings at risk.

Before you put your trust in financial advice you should be sure of the competency of the source of the advice as well as the breadth of the alternatives that were considered. To be sure, competence is not always easily gauged. But learning about the background, history, and qualifications of an adviser can help you gauge competence.

No matter the country, the credentials, or type of person, it is up to you to determine if the Personal Financial Adviser is someone you can trust and if he or she has the skills to meet your needs.

To be sure, trust can be a difficult thing to assess. In essence, you need to determine if there is a chemistry that exists between you and the adviser, if you feel comfortable with the adviser and his or her advice. Even more important, you need to believe and know that the adviser places your interest ahead of his or her own.

Other questions you should ask yourself regarding trust include: do you take the adviser’s recommendations? Do you expect that you will be a client of that adviser a year from now? Do you feel comfortable recommending the adviser to your friends and family? If the answers to those questions are yes, then you most likely trust your adviser.

One word of warning. Many bad advisers have developed techniques to inspire confidence and trust. So while it is important to feel good about your adviser, you should avoid picking an adviser only on that basis. Trust is only one of several key elements involved in searching for and selecting an adviser.

A popular short-cut to good advice is for the adviser to find out how comfortable you are with risk "in general." Whether you are aggressive or conservative. Whether you are willing or able to "sleep at night" with this or that investment. But as with most short-cuts there is a chance this will lead nowhere.

Why is that? Essentially, because every aspect of life carries with it some risk. Working, walking, sleeping, eating, and investing are all risky.

As for investing, it’s especially important to note that one’s tolerance for risk is not uniform, nor is it consistent over time. For instance, your tolerance for losing your paycheck may be very different from your tolerance for losing money in long-term investments. What’s more, your willingness to take a risk with your investments may change dramatically after you have had a child or lose a job or retire.

As suggested, all investments are risky. Some investments, like stocks, are subject to market risk. While others, like certificates of deposits, are subject to inflation risk. And since there are so many different types of risk at work, it is truly impossible to categorize a person as "risk-averse" or not. Risk-averse to what?

Far too often, investors say they are conservative and afraid of losing money in the stock market. Unfortunately, that is just one of several risks at play. Indeed, many investors saving for retirement some 30 years in the future say they are fearful of the volatility of the stock market, but are all too often unaware or unafraid of a risk more insidious than volatility, that being inflation. Inflation can wreak much more havoc on an investor’s long-term goals than losing money in the stock market in any given year.

What is really important then about risk tolerance is that you identify precisely the risk, e.g. inflation, market, default, to which you are averse, and then define precisely the risks you are willing to tolerate and avoid to achieve this or that objective.

Advisers ought to explain the many different kinds of risks in relation to your personal financial and non-financial goals and time horizon. Advisers also ought to apply "risk tolerance" specifically to your financial investments and revisit regularly.

Again, risk tolerance should not be used solely as the basis for making a decision about matters of personal finance. Rather, it should be used in context, and especially in relation to other factors, such as your time horizon and your investment objective.