Written by: Corey Janoff
This post was originally published on our previous blog website on October 17, 2018 and has since not been revised and/or updated.
After reading the last eleven weeks of Financial Planning 101 blogs, you may be thinking to yourself, “I need help with this stuff. I can’t do it all myself.” That is perfectly normal. Financial planning is not your area of expertise, nor do you have the desire to devote the necessary time and energy to it. Today we will look at things to consider when hiring a financial advisor or financial planner – the two terms are often used interchangeably.
For those of you who feel hiring a financial advisor is a waste of money and you would be better off handling your financial planning yourself, then great. I’m not here to try to convince you otherwise. The first step to getting help is admitting that you need it. We’ll be here for you when you’re ready.
For the rest of you who want a co-pilot on this financial journey, we’re here to help you find one. If you want to save yourself the trouble of reading through this post, simply contact us at Finity Group and we will pair an advisor with you to suit your needs. If you care to learn more about what to look for in a financial advisor, read on.
What to Look For in a Financial Advisor
A good financial advisor should possess all of the usual personality traits you would expect – honesty, integrity, compassion, knowledge, etc. It is hard to pre-determine those things unless you are getting a referral from a friend or colleague. However, there are some things you can identify up front. We will elaborate on all of these.
A good financial advisor should be able to give objective advice. He or she should adhere to the fiduciary standard. It helps if your advisor specializes in clients of similar occupation or circumstance as you. You also want your financial advisor to be a good personality fit for you.
Independent Financial Advisor
Most people expect their financial advisor to give them honest and objective advice and avoid conflicts of interest. If that is the case, one should seek out an independent financial advisor.
Having a financial advisor who works for an independent company, means the advisor’s company does not manufacture its own products, nor is it in a contractual relationship with a company that does. In simple terms, the company doesn’t make any mutual funds, ETF’s, insurances, or annuities.
Hypothetically, let’s say your financial advisor works for XYZ Company and XYZ has mutual funds and insurances in addition to financial advisors. If you are looking to invest for retirement and purchase life insurance to protect your family, odds are, your advisor is going to recommend you invest in XYZ mutual funds and purchase XYZ life insurance.
XYZ’s products may be perfectly suitable for your needs, but you wouldn’t know if there was something else out there that might be better. If you ask your advisor to compare XYZ’s products to options from other companies, you will likely get a sales pitch as to why XYZ’s options are superior to the other choices out there.
See, companies who manufacture their own products train their employees on how to sell their company’s products. Financial advising comes secondhand. From a compensation standpoint, the salesperson is incentivized to sell more of his own company’s label.
Sometimes it can get sneaky, as the advisor works under a different label than the company that manufactures the products, but they are both under the same umbrella. There might be a Unicorn Financial Planners who operate as a wholly owned subsidiary of XYZ Company. You wouldn’t know they were affiliated unless you did some digging.
Now, there are some great financial advisors at companies like these who recognize when their company’s products are inferior to others in certain circumstances and will help the client get what’s best for the client. These advisors are hard to find though at companies like this.
If you want your financial advisor to be truly objective when making recommendations, then you want your advisor to work at an independent company. This way, the advisor couldn’t care less which company’s products you use. They just want to make sure you are getting what’s best for your financial needs and goals.
How Do I Tell if a Financial Advisor is Independent?
Easy. You could ask. You could ask if their company has any of its own products or if the advisor has to refer out or help the client shop the market.
You could also search for the advisor on FINRA’s Broker Check website. FINRA is a regulatory body of the financial industry that all financial advisors are registered with. You will see the company (or companies) the advisor is affiliated with or employed by. If you notice a mutual fund or insurance company on there, odds are the advisor will recommend products from that company.
If you don’t find the person you are looking for, it could be a red flag. Make sure you spell their name correctly or check if their legal name is different.
Fiduciary
You have probably heard the word “fiduciary” a lot in the last several years as it pertains to financial advisors. People are told to ask if their financial advisor is a fiduciary. What the heck does that mean?
What you are really supposed to ask is if your financial advisor is contractually bound to the fiduciary standard of care. This means the financial advisor is required to put your interests ahead of his own and make recommendations that are in your best interest. He is also required to disclose any conflicts of interest.
Again, an easy way to find out is to ask. If your financial advisor holds a CERTIFIED FINANCIAL PLANNER™ or CFP® designation, it’s an automatic yes, as the CFP® Board requires that standard. All financial advisors at Finity Group are required to adhere to the fiduciary standard as well.
Does Your Financial Advisor Specialize In You?
Similar to medicine, there are generalists and there are specialists. Many financial advisors will work with anybody. Some will specialize in a certain type of client.
For example, I work almost exclusively with medical professionals – mostly doctors and dentists. The clients I have who aren’t in those fields are friends and family members of medical professionals who have been referred to me. When you see similar situations every day, you start to get pretty good at handling those situations.
Handling massive student loan debt. Buying a house with a minimal down payment, because your income quadrupled overnight. Liability insurance. How to get money in a Roth IRA when you make too much money to contribute to a Roth IRA. These are all things that doctors deal with that the typical person may not.
You don’t have to have a financial advisor who specializes in you, but it can be helpful if you have a unique situation. Maybe you own a business and want to work with someone who has experience with business owners. Maybe you have a child with special needs and want to work with someone with experience in that arena.
Something to consider.
Personality Fit
This piece is probably overlooked and underrated. Good teammates are a joy to work with and motivate those around them to achieve higher success. It may not be all fun and games, but you enjoy working with them. Your financial advisor is a part of your team.
If you don’t like the person who is giving you advice, you probably aren’t going to follow that advice or be as engaged in the planning process. You don’t have to be best friends with your financial advisor, but it helps if you respect the person and get along well.
Think of it like a coach/player relationship. If you played sports growing up, your best coaches were the ones who understood you and pushed you to reach your potential. You got along and could have a conversation with each other. You liked being coached by that person. You may not have always liked doing wind sprints at the end of practice, but you understood your coach was doing what was best to help prepare you for the game.
Everyone has a different personality and meshes better with certain types of people. Maybe you are very analytical and like to see all of the details. Maybe you don’t care how the watch works and would rather keep it big picture and simply know what time it is. Some people like humor. Other people like serious. Some people like casual conversation. Others want to get to the point.
A really skilled financial advisor can switch hit and accommodate multiple types of personalities across a client base.
Hope That Helps
If you don’t already have a financial advisor, or are looking to change, I hope this helps you in your search.
This concludes the Financial Planning 101 series on the Financial Clarity Blog! I hope you enjoyed it and found the posts useful. We’ll be back to the usual menagerie of blog posts from here.
