You can certainly go it alone when it comes to managing your money. But you could also try to do it yourself when it comes to auto repair. In both areas, doing it yourself is a brilliant idea for some, and a flawed plan for many, many others. Mastering personal finance requires many hours of research and learning. For most, it’s not worth the time and ongoing effort. As you get older, busier and more wealthy, your financial goals – and options – get more complicated. A financial professional help can save you time.
And we get it, the expanse of the financial expert ecosystem can be so complex and convoluted – with fancy titles like wealth manager, financial planner, broker, financial adviser, financial coach and the list goes on – it may be difficult when deciding when you should take the leap.
Here’s a few things to look for when deciding to hire a financial adviser:
Standard of Care
There’s a buzz word in the industry called ‘Fiduciary Standard‘. We get it, it’s a weird word but what it means is that an advisor with fiduciary responsibility must act in the best interest of their client, putting their client’s interest ahead of their own at all times. You would think that anyone managing someone’s hard earned money would have to abide by these standards, right? FALSE! The majority of financial professionals out there do not have to follow this principle.
Location Matters
At independent registered investment advisory firms (RIA’s), advisers fall under the Fiduciary Standard. These stand-alone advisories aren’t connected to a brokerage or bank and typically has access to the universe of investment products, including some of the cheapest index funds. There are numerous RIA’s out there and each might focus on a different type of clients, some serving high net worth individuals, some serving doctors, others working only with female entrepreneurs etc.
FYI: We work with Millennials in tech!
A lot of the stockbrokers and advisors connected to large banks do not have a fiduciary duty to their clients. Instead, they fall under what’s known as the ‘Suitability Standard‘. This means that as long as they can justify that a particular product is suitable for their client’s situation, they can sell it to them – even if it’s more expensive and pays them a fatter commission. Yikes!
Fees and Conflicts of Interest
Identify how an advisor is compensated to gain a better understanding of their potential incentives and conflicts of interest. Typically, advisors are paid through:
1) only client fees (“fee-only”)
2) commissions, or
3) a combination of both (“fee-based”)
More conflicts of interest arise when commissions are involved. As you can imagine, it becomes harder for the adviser to stay independent and put your interests ahead of their own.
Know What You’re Paying For
This one goes without saying, but it’s important to know what options are out there. Before you sign on, be sure to understand how often and with whom, and how you will be interacting. Some advisors have an initial upfront meeting and then check-in with clients once a year, while other advisors provide ongoing support throughout the year to help with the implementation of a plan and coordination with other service providers, such as insurance agents, mortgage brokers, and accountants.
Beyond meeting cadence and service level, transparency and relatability matter as well. So yeah, you should actually like your adviser and be able to envision a good working relationship with them. There’s nothing better than working with someone whom you have plenty of things in common with or whom truly understands you and your goals.
The Finale: Good News and Bad News
Now that the Fiduciary Rule is dead (federally at least), brokers don’t have to disclose conflicts of interest the way they did under the rule. Lucky for you, regardless of the rule, Registered Investment Advisers (RIA’s) are required to be fiduciary. The best way to know whether your adviser is a RIA, broker, or both is to search BrokerCheck, a database maintained by FINRA. Investors can even take the extra step and ask their financial professional to put in writing whether he or she is a fiduciary in their particular relationship.