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Asking Why

Why I Wrote This Guide

This guide is to help you understand what types of financial advisors, financial planners, investment advisors, stock pickers, financial brokers, investment managers, wealth managers, and other professionals are best for you.

There are so many different types of financial experts and so-called financial experts that want your business. I wrote this guide with the goal of providing you with enough information so you’ll never wonder how to find a financial advisor you can trust.

My goal is that by the time you are done reading this you will know exactly where to go, whom to interview and/or whom not to interview as your next personal financial advisor.

Who Am I?

I am someone who was new to financial services 5 years ago. I had no idea how difficult it was to find a financial advisor until I was actually employed by two of them. My name’s James Gibson and I’m the Director of Marketing for a financial advisory firm in New Jersey.

Finding a financial advisor is searching for someone you’ll trust with your financial well-being. In many cases, your relationship with your financial advisor will last the rest of your life. It's always a good decision to do your research before searching for an advisor.

Trying to explain all the valuable things that come with a financial advisor is close to impossible. I’ve spent 5 years coming up with the best ways for finding a financial advisor and helping people to understand their value. I wrote this guide so that anyone, no matter what type of background you have, can understand who they need and who they don’t need to help them make good financial decisions.

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Financial Advisor Nots

Do I Need a Financial Advisor?

The average American student of 15 years of age doesn’t know enough about financial literacy. According to a 2014 international study, American students just don’t measure up. That is a problem that we’re facing today but there’s evidence that this was true in the past as well.

Seventy five percent of adult Americans “agree that they could benefit from additional advice and answers to everyday financial questions from a professional.” What’s worse is that 67% of Americans admit to “making one really bad financial decision,” and half of those people made more than one.

I myself had a humbling introduction to the financial srvices industry. My third day on the job I learned about a client who filed their taxes wrong because they lived and worked in two different states. It would have cost them thousands if one of the advisors didn’t discover it. In fact, if there is one thing I learned early on it’s that all types of people - wealthy, young, elderly, recent grads, and retirees make honest financial mistakes almost every day.

These are decisions around everyday finances that seem simple. They’re decisions made around insurance, retirement savings, taxes, investments, spending, and more. These mistakes can end up costing people hundreds, thousands, and even millions of dollars by the time they are ready to retire and they’re more common than you think.

My goal in this article is not to scare you. I’m sure many people go about their life without ever knowing they made a significant financial mistake. However, the people that take the longest to seek financial advice are the ones that either dig themselves into a hole or miss out on significant opportunity (whichever way you want to look at it). Some of the most successful people seem to not miss out on those opportunities, but do not mix up the symptom with the catalyst...

Making good financial decisions doesn’t follow success. Success is a symptom of making good financial decisions.   Tweet This

Every year the advisors here meet a handful of people who made a wrong financial decision. What seemed to be a simple judgment call at the time turned into one of their worst decisions, resulting in repercussions that are tough for anyone to accept. I’m not a financial advisor, but I don’t have to be one to tell you one of the hardest parts of their job. Having to explain to someone the amount of money, time, and emotion they’ve wasted on that bad decision is not enjoyable. If you are reading this you are being diligent. You are taking proper steps in the search for someone who will help you avoid big mistakes while also capitalizing on opportunity when it arises.

So…

Do I need a financial advisor? – Yes, you probably do, but here’s how you can tell.

The odds are that you could in fact benefit from some added financial guidance, much like all Americans. Access to professional help is easier and cheaper than ever before. However, if you want to find a definitive answer to this question it can be done by going through a quick exercise.

In general, if you feel that you are someone who,

  1. Has more to lose than to gain financially.
  2. Wants to have more to lose than to gain financially.
  3. And/ or doesn’t want others to lose because of your financial actions.

  4. … then you would benefit from professional financial advice.

    However, if you are someone who

  5. Is ok with not knowing whether or not you’re making poor financial decisions.
  6. Is not worried about yourself or anyone else being impacted by your own financial mistakes.
...then you don’t need professional financial advice.

Yes, it is that simple. If you are better described by numbers one, two, and three then there are two better questions that can be asked here:

  1. How much effort do I want to put into getting my financial life in order?
  2. How accessible is that financial advice for someone like me?
The great news is that today could not be a better time for anyone seeking professional advice. Thanks to technology, financial advice is better and more accessible for all types of investors searching for retirement planning, investment management, insurance analysis, estate planning, income planning, tax planning, and more. The best way to approach finding a financial advisor that’s right for you is to start with the…

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Metaphor for Types of Financial Advisors

Types of Financial Advisors

There are many different types of titles in financial services. There are financial advisors, financial planners, financial consultants, brokers, investment advisors, investment managers, wealth managers, accountants, stock pickers, and the list can go on and on. The title typically does not matter. What matters is the services they provide. I’ll be going through who you should work with and why depending on your needs.

Types of Fees

In order to explain the advisors that place your best interests first, we have to explain how they make their money. Again, I’ll explain later the fee models that you should avoid and why, but for now I’ll focus on the ones that many believe are in your best interests. The most common fee model used today that is associated with placing your interests first is one that charges a yearly percentage of the total amount of assets being managed.

For instance, let’s say John has $1,000,000 to invest in a professionally managed portfolio. John, reaches out to an advisor who charges him a 1% fee yearly. To calculate that fee we simply multiply his total amount of assets ($1,000,000) by the percentage fee (1%) and we get a yearly fee of $10,000. Then the advisors buy low-cost investments for Johns $1,000,000 portfolio and those cost on average 0.5%. The 0.5% cost is the expense for the funds the advisors are selecting for John (make sure you ask about these because advisors can choose low-cost options). That makes the total fee charged to John at 1.5%.

These advisors will hopefully invest John’s money well and increase his investment portfolio over the next 10 years on an average of 5% - 8% a year. This gives John an after-fee benefit of 3.5% - 6.5% a year. So you do the math! If the advisor is helping you acheive 3.5% to 6.5% for the first year, that equates to $35,000 to $65,000 in investment gains. Now remember, 3.5% - 6.5% is the average return after 10 to 15 years of investing. It’s a bumpy road ahead. In the first year John could lose a certain percentage and in other years he could gain a very big percentage. Over time however, his goal of 3.5% -6.5% could be met, but it all depends on how much homework he does on finding an educated, trustworthy, and experienced advisor.

Both John and the advisor will benefit together under this fee-structure. This to some is the best model for fees because it gives you access to the advisor all year and it holds the advisor accountable for investing your assets as best for you as possible. It does not however hold them accountable to placing your interest first – I’ll explain more on this later.

Now that we have that squared away, we will now help you understand the advisors that will offer the most value and the ones who are obligated to place your interests first.

Best Financial Advisor #1:

Financial Advisor, Financial Planner, or Wealth Managers that are fee-only and a fiduciary.

First off, “fee only” describes a business model and fee structure. These advisors typically use the fee structure I explained above. You may have heard someone call these advisors “independent”. Fee-only advisors are ones that do not make commissions and are not compensated from a third party. The best way to find out for sure, is to simply ask them.

An example of an advisor who makes commissions would be an advisor working for a big firm who makes commissions for placing you in that big firm's funds. That advisor will make typically 1% for advisory fees and then an extra percentage of up to 2% or more in commissions from their employer.

So, finding a fee-only advisor is extremely important because whether or not you trust an advisor who makes their money from commissions, the business model of the company they work for gives them the opportunity to go against your trust. Now, the same can be said for a fee-only advisor who poorly advises you to invest more money with them to charge you more. That’s why they must also be a fiduciary…

Second, a fiduciary is someone who is liable to place your interests ahead of their own, which combined with a fee-only business model completes the full package of an advisor you can trust. If they are both, they are now liable for placing your interests ahead of their own (fiduciary) and they are NOT paid for placing you in an expensive, poor performing investment (fee-only).

Third and finally, the financial planner, financial advisor, and wealth manager job titles don’t matter. For example, our office decided we might call ourselves financial advisors instead of financial planners or wealth managers simply because we asked our clients what they liked better. The only thing that matters is what services those advisors, planners, or managers actually offer. I’m going to teach you how to decide which services are best for you.

Now, finding a fee-only, fiduciary advisor, planner, or manager is a fantastic start but it’s not everything. I know, you’re probably thinking… WHY CANT THIS BE EASY!? Don’t worry it will be very shortly.

The best financial advisors are ones that also have experience, are knowledgeable about more than investments and products, and also work with a team of other experienced and educated advisors.

How do you know if the advisor is knowledgeable and experienced? Look for financial planners with the CERTIFIFED FINANCIAL PLANNER™ (CFP®) designation after their name. This is one of the industries most revered certifications and one of the hardest to achieve. They also need either 2 years of apprenticeship or 3 years of working experience at an advisory firm to get the certification. CERTIFIED FINANCIAL PLANNER™ practitioners focus on 7 financial planning subject areas that give you the most comprehensive advice to and the most bang for your buck. Make sure they actually offer those financial planning areas in their services and that they don't just use their CFP® as a marketing tactic.

Why you would need this type of advisor and what should they cost:

A financial advisor who offers comprehensive financial planning is worth your time for so many reasons. This advisor provides advice that goes way beyond your investment accounts, yet they provide it all for the same fee as some simple investment advisors.

One example of a benefit these advisors offers is that they may be able to save you money in everyday opportunities you don’t realize you’re missing out on. As I said earlier, it’s tough to explain the value these advisors bring but the best way I can explain it is by sharing some of our company’s stories and examples…

Client Story #1: One of the advisors reviewed a client’s life insurance policy. He found the client was paying way too much in life insurance for coverage he simply didn’t need. The advisor reviewed his policy and put him in touch with an insurance professional he knew and was able to save him about $40,000 in ten to fifteen years. When the client asked the advisor how the insurance product compensated the advisor, he told him it didn’t. The advisor received no compensation whatsoever. It was simply the best option for him and for his family.

Client Story #2: A similar situation happened when a client was discussing college savings for their child with their advisor. The advisor suggested they moved their 529 college savings plan to different plan because of a potential tax benefit and lower fees. They were surprised to hear that it would save them hundreds of dollars every year and that the advisors compensation was staying exactly the same for doing so. There were no commissions, added fees, nothing that benefitted the advisor. That is the potential power of a fee-only, fiduciary financial advisor.

Ok, so what do they cost?

Typically this type of advisor is accessible only for those who have a certain amount of money to invest. This gives the advisor the ability to offer their services with comprehensive advice. The good part? You can get access to an advisor such as this at the same price a lot of people pay for simple investment management.

The typical fee for an advisor such as this is 1% of your investable assets, with typical minimum assets managed of $500,000 (or a minimum fee of $5,000/yr if your assets are lower than $500,000). They will charge lower fees for those who have more assets.

My suggestion: (Disclaimer- this is my employer) HIGHLAND Financial Advisors is a fee-only firm with fiduciary financial advisors who are all CERTIFIED FINANCIAL PLANNER™ professionals, work as a team of 4 financial planners, and offer both comprehensive financial planning as I just explained, and also investment management - which brings us to the next best financial advisor…

Best Financial Advisor #2:

Investment Advisors and Investment Managers that are fee-only and a fiduciary.

A simple investment advisor and investment manager can be a fiduciary and work for a fee-only firm as well. Investment advisors and investment managers, as their name suggests, only provide investment advice.

These advisors provide the same services that financial advisors and financial planners provide when it comes to investing your money, but nothing more. This comes with a lower cost which makes it available to those with a lower amount of investable assets. Some may even offer advice on saving for retirement, creating savings goals, and even give tax advice around your investment accounts.

This model is again better because you know what you are paying. There are no hidden fees on the investments they place you in but again, make sure you ask about fees associated with purchasing investments.

One thing you can ask your advisor is, “Do you make any additional compensation from third parties.” This is important to ask because some advisors, planners, brokers, etc, will try to mask their true commission–based business model by calling themselves things such as “fee-based” instead of fee-only.

Why you would need this type of advisor and what should they cost:

These advisors can sometime be a good option for younger investors or investors with smaller portfolios. It’s an option for getting access to the same investment advice that millionaires receive, just without a lot of the financial planning aspects. These advisors are for investors seeking to save more and build their assets for the future. A lot of people will start with this service and upgrade their service to receive a financial plan once they build their assets and have more responsibility.

The cost for these advisors is getting extraordinarily low because of technological advancements. These tech companies can invest your money with a fee-only business model but do so with little human interaction at a fee of about 0.25% - 0.50%. However, be careful. If you use these advisors you have to do your homework about which investment accounts to open and why. We have heard of people getting themselves into future tax repercussions that can be costly (ex: opening and funding a Traditional IRA when you already have a 401k and meet a certain income level).

A human investment advisor that provides these services can give you better advice, tell how much you should invest if you are saving for a big purchase, and save you money on taxes by stopping mistakes when opening and funding investment accounts. These advisors typically cost around 0.80% and get lower as your assets grow over time. Some of these advisors also provide comprehensive financial planning, so when your assets grow and you need more advice the upgrade is an easy process. An online financial advisor may not offer that upgrade. Again, you can find this type of advisor if you ask the right questions and again I would suggest (Disclaimer: the following suggestion is my employer) Highland Financial Advisors who also provides fee-only, fiduciary investment management for clients all over the globe.

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Where to Find a Financial Advisor Notes

Where to Find a Financial Advisor

  1. NAPFA's website. The National Association of Personal Financial Advisors is one of the biggest conglomerates of fee-only financial planners. They provide a search where you can look for a fee-only advisor near you.

  2. CFP® Board’s website. You can also head to the CFP® Board’s website to find a CFP® that’s close to you. That narrows your search down so all you’d have to do is find the ones who are fee-only, a fiduciary, are experienced, and work with a team.

  3. A Certified Public Accountant (CPA) paired with a personal financial planner is something almost all of our clients do. A CPA may have a financial advisor that they trust and refer to their clients. Again just ask the right questions so you find a fiduciary, independent CFP®.

  4. Your friends and family. Be careful with this one. Don’t be so quick to hire an advisor your family or friend claim is a fiduciary, fee-only, experienced, team oriented, and a CFP®. They might not know what all of that means and hey, now you do.

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Best Financial Advisor Questions

5 Final Tips

You’ve made it this far, why not take in some last tips to secure the best financial planner for you? Here are a few final suggestions:

  1. Find a financial planner with no boundaries: It will happen. You’ll be on a vacation, far from home, or you simply don’t want to drive somewhere to meet with your advisor. Hire someone that has the ability to meet via video meeting from anywhere in the world.

  2. Ask them about their investment strategy: Do you lean a certain way when it comes to an investment strategy? Maybe passive or active trading? If you know a little bit about investing and your investment philosophy is different than your advisors, the relationship simply won’t work. If you’re not sure what investment strategy you want your advisor to have, just make sure they don’t promise a high return or claim they can beat the market. Many studies have shown that this is impossible.

  3. Ask them how often you will communicate: This only applies to those who are looking for a comprehensive personal financial planner. Some advisors let you decide how often you want to and some won’t. If you both decide to only meet once a year, that’s fine but ask them how proactive they are with your financial plan.

  4. How do they protect your personal information: This is something that many don’t ask because it’s never been a big risk in the past. Today is a different story. Some of the biggest companies with the most resources are getting their information stolen. Ask the advisor how they protect your digital and physical information from being stolen.

  5. Ask them the CFP Board's ten questions: Head to the CFP® Board's website and print out their ten questions to ask a potential financial advisor. Get the advisors answers to those questions back in writing. This will solidify that they actually practice what they have learned in their CERTIFIED FINANCIAL PLANNER™ program.
You’re finished! Don’t be overwhelmed, just remember your steps. The best financial advisors are fiduciaries, fee-only, CFP®’s, experienced, educated, comprehensive, work as a team with other advisors, have no boundaries, don’t promise high returns, have good communication, and protect your personal information. Thank you for taking the time to read this. If you found this guide on how to find a financial advisor helpful, feel free to share it and to also consider including Highland Financial Advisors in your search.

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