Evidence-based insights on how to transform career success into financial freedom.

Look Before You Leap: Choosing A Financial Advisor

Most people need help managing their personal finances but not everyone chooses to work with a certified financial planner. Why? Often it is a lack of understanding the purpose and value of hiring a financial planner and what kind of planner is best for their requirements. Choosing a financial planner is similar in many ways to choosing any professional, whether it be a plumber, a landscaper, or a lawyer. First, you identify your problem or needs. Then you do some research to help you solve the problem, identifying people who can assist you. Often it helps to get recommendations from friends or family. Then you interview the prospective professionals and decide how to proceed. Asking the right questions and knowing what to look for is key in the decision-making process. Here are some points to keep in mind when deciding on the best financial planner for you.

Aptitude and Attitude

Does the financial planner have the aptitude and excellence to work with you?  Anyone can market himself or herself as a financial planner. However, professional designations, such as Certified Financial Planner (CFP), Chartered Financial Analyst (CFA), or Certified Public Accountant (CPA) are the gold standard in the financial planning industry, signifying the degree of training and knowledge the planner brings to the table.

The Financial Plan

Does the financial planner draft a financial plan for you? A financial plan should take into account your entire financial picture, including your age and responsibilities. Following is a list of topics that should be part of your financial plan.

  • Your Goals
  • YourAction Plan
  • Your Balance Sheet
  • Your Savings and Spending Plan
  • Your Tax Plan
  • Your Wealth Transfer Plan
  • Your Charitable Plan

Investment Advisory

Does the financial planner manage money?

Does the financial planner have an Investment Philosophy that aligns with yours? Is it too aggressive or too timid?

Does the financial planner review Risk and Reward Potential? What is your comfort level?

Why is this person a financial planner? Ask them!

Part of a financial planner’s job is to help guide you through your career and retirement.  A financial planner should be able to share with you why they became a financial planner in the first place and what motivates them to continue.

Incentives Matter

What financial planners do not do can be just as important as what they do. As with any professional, there are costs in working with a financial planner. But how a financial planner is compensated may influence how they advise you. There are three basic types of compensation models in financial planning.

Fee-only planners: are paid only by the client. These planners do not receive commissions, or kickbacks, from products. The fee-only model is transparent and therefore limits conflicts of interest.

Fee-based planners: may be paid by the client as well as by product commissions.

Commission-only planners: are paid only by product commissions.

Note that financial planners who are paid with product commissions may be incentivized to recommend certain products in order to receive higher commissions.

Since most people want a financial planner who is legally obligated to act in their (the client’s) best interests, it is important to get the planner to put in writing that they act as a fiduciary. That is, they are acting in your best interest, not their own. Interested in learning more? Please give us a call.

Why Are Large Banks Running Away From the Fiduciary Rule?

In 2016, the U.S. Department of Labor announced new regulations implementing a fiduciary standard for retirement accounts and other qualified accounts such as IRAs. By law, a fiduciary acts in the client’s best interest. An advisor or broker would have to reveal to the client how and why they are not acting in the investor’s best interest if they are not doing so.

Seems reasonable, right?

In March 2017, some of the major firms, such as J.P. Morgan, started to comply with this fiduciary rule. They sent letters to their clients stating “your financial advisor will no longer be able to provide investment guidance,” (according to the letter forwarded to me).

This fiduciary rule is scheduled to go into effect April 10, 2017, unless it is repealed or pushed to a later date. At the moment, the rule is being reviewed.

But wait, it gets better.

The letter also states, “We will notify you in the event these regulations are not implemented as currently planned, as we may not proceed with this transition.”

So the question is, why would these institutions not take fiduciary responsibility of their customers? I’ll let you draw your own conclusions.

When people entrust someone with managing something as important as their money, I have always believed that someone should act as a fiduciary. I myself have always worked as a fiduciary for my clients.

Tony Robbins recently came out with a new book highlighting a loophole on how financial advisors present themselves as fiduciaries but do not act as a fiduciary 100% of the time. Tony Robbins explains how dually registered financial advisors can switch hats at any time. When working with a dually registered financial advisor, it is nearly impossible to know when the financial advisor is working in your best interest.

If you know anyone who would like to learn more about working with a financial advisor who works as a fiduciary a 100% of the time, I would love to start the discussion.