Since you clicked to this post, I am going to make the assumption that a life event has occurred that has finally made you conclude – ‘I need to bring in a professional’. That is how it usually happen1. It doesn’t matter what spurs the thought:
Whatever the catalyst is, the important thing is that you understand an expert can help save you time and money and reduce stress.
The issue now is you are swimming through shark-infested waters. There are plenty in this profession circling around who are more concerned with their profits than your portfolio or who may lack a depth of knowledge. Finding a financial advisor that is trustworthy, knowledgeable, and transparent can be a real challenge3. That is why before you start your search, there are a few things to consider:
Take a look around at advisors' websites, and you are likely to see the word Fiduciary4. Simply put, it means that the advisor has a duty to act in the client's best interest, disclose any conflicts of interest, and follow the client’s instructions (assuming they are reasonable & lawful). Doesn’t that feel like it should be table stakes? Agreed – I believe it should be too.
Unfortunately, it is not required by law5. What is required is the suitability standard – it states that as long as the advisor can justify that a security/product is suitable for a client, it can be sold, and commissions can be collected. What seemed like the low bar just got lower.
Knowing that information, finding a fiduciary should be the first item checked off in your search. If anyone you are talking to doesn’t clear that hurdle, I would be suspect.
Don’t simply take someone’s word for it either – test them. Ask if the advisor has any conflicts of interest and use the FINRA’s Broker Check website to check to make sure it’s the truth.
One of the things I think we can all relate to is taking a car into the autobody shop, getting work done to it, and having no clue what it will end up costing – Hell no, do I know the price of a new flux capacitor6.
This lack of transparency is stressful and annoying. It shouldn’t exist when it comes to your financial help. Be sure to ask outright and without fear. It may feel slightly be awkward, but any professional offended by that question should not be trusted.
There are three potential responses for what you will get as an answer:
While there could be nothing wrong with sales-related compensation, a more inherent conflict of interest exists8 as they are inclined to sell you the products that make them more.
Additionally, it’s essential to inquire about the typical average expense ratio if they use ETFs and Mutual Funds. These are fees you indirectly pay to the companies that run the funds and need to be factored on top of the advisor's management fee.
Another question to ask is if there are any additional fees for planning. Some advisors will include planning within their management fee and others have a separate charge. Neither is wrong, but you should know to be able to compare against other advisors. administrative or other fees.
Lastly, find out if there are any administrative or other fees.
Now there is a whole other layer to the fee conversation, and it is highly debated9. But due to a desire to avoid that right now, I will strictly refer to the most common Asset Under Management (AUM) model. As a rule of thumb, for active investment management, all-in fees should never be above 3%10. If the advisor's investment management philosophy is strictly passive, it should be significantly lower (around 1.75% at the higher end).
I am not saying you need to research and ask detailed questions about algorithms or screens used. But at a minimum, the advisor should explain when and why they buy, sell, rebalance (adjust amount in each current holding). Each security should have a purpose of why it is held11.
Most important is the advisor should consider your unique characteristics. How can they invest your portfolio correctly if they don’t understand your time horizon, liquidity needs, tax situation, risk tolerance, etc.? Ideally, this would be done through a holistic financial plan that is updated continuously, but it should be a detailed conversation at worst. Anything less, and they are simply investing you only on rules of thumb, and is your situation really precisely the same as all of your friends' situations? Didn’t think so.
As I mention often, the dynamic with your advisor should be a relationship, not merely a transaction. That relationship needs to have trust and give you confidence that the advisor is on top of things. Building that kind of relationship will require talking with you more than once a year – it has to12. On top of that, as your life changes, your financial plan should be changing with it13.
Therefore, it only makes sense to enjoy talking to your advisor. They should be someone who works with you and doesn’t talk down to you. They should educate you and empower you. That is how you will get the most out of your advisor and not dread dealing with your finances.
5. Find someone who doesn't take themselves too seriously
Let's be honest for a second - taking finances isn't exactly a fun topic. There is a lot of emotion and baggage that can come with the topic. Find someone that doesn't make the process painful. They should be a partner and a guide - Not someone who talks down or makes the process something you dread.
That doesn't mean your advisor shouldn't be professional and deliver solid work - that should be a given. At the same time, you aren't looking to work with someone who talks like a robot or like they are reading to you from a textbook. While I can't promise personal finance will ever be exciting, it doesn't mean that it has to be unbearable.
So please take these steps. Use them. There is no guarantee it will land you the perfect advisor, but hey, not everyone can be me -- just joking14.
1. No one ever seems to just crave a change out of the blue. – Although that’d be nice. It’d make things easier for me.
2. Congratulations! Get ready for the ride!
4. It's more common than Patagonia vests at a tech conference.
5. For now, just take my word - I’ll address this another time.
7. Have I mentioned how much I hate the muddied waters of the ‘finance’ language.
8. That is not to say there can’t be conflicts even with Fee-Only firms. The model simply has fewer direct conflicts stemming from the pricing model.
9. At least [most]It is a weekly dumpster fire conversation that occurs on financial Twitter between advisors.
10. 3% is a VERY conservative number. Anything at or above should be considered a huge red flag.
11. And it should go beyond simply ‘it's high or low.’
12. Ryan Gosling isn’t even that smooth.
13. And subsequently your investment portfolio!
14. No, seriously, to the regulator reading this, it is very much a joke. In no way am I attempting to infer any form of superiority to the rest of the industry.
A great financial advisor can be life changing. They can help build clairity and confidence but as in any profession there are plenty of bad apples. Use these tips to find an advisor that is right for you and avoid those that overpromise and underdeliver.
our career moves arguably make a bigger impact on your financial life than almost any other decision. To make a good decision for your family it’s important that you weigh your job options carefully. Here are 3 steps to consider
When you begin exploring consulting, whether on the side or as a second career, we generally attempt to answer two questions. The first is fairly obvious, “How much should you get paid as a consultant?”. This pushes us toward a lot of questions around how that individual views their business of consulting. The second question I recommend would-be consultants answer is, “What will taking consulting jobs change about my vision for the next stage of life?”. I have found that we can frame both these questions a bit better when we begin by determining what hourly rate you can expect to target in your initial consulting jobs.