8 Things to Consider When You’re Looking For A Financial Advisor

November 2, 2020 5 Minute Read

Have you ever looked in the mirror and thought to yourself, I thought I’d be farther along by now?  More secure, able to do more, be more?

For over 20 years, I’ve worked to build my business around my clients’ best interest, so it’s important to share the top things I’ve learned you need to know to live a life of financial independence. My clients’ end goal is not security in old age retirement – it’s to get to the promised land of financial freedom as soon as possible, where the assets they have are sufficient to sustain them. That’s why I’ve learned to identify all the things that set people back on their journey to leaving the workforce, educating their children, building that dream house on the lake. Some of the information is controversial, and I may make a few people mad, but I care more about your success. So, here is my list of the top 8 things you need to know about choosing your guide.

BTW, I use FA to mean Financial Advisor/Financial Planner/Financial consultant/Stockbroker. We’ll use FA for all of them. We are replacing FA with Financial Advocate because so many use FA.

 ~ On to the list.

  1. Most FAs are not bound to act in your best interest.

You may have heard the term “fiduciary” to describe a kind of FA.  The Investopedia definition states: “A fiduciary acts solely in another person’s best interest and is legally binding.”

You can be an FA and not be a fiduciary even though many assume that they are.  Most are not.  Many advisors are dual licensed as a broker or registered representative and as an investment advisor.  This dynamic creates conflicts that are hard to avoid.  The industry and regulators have been trying to solve this for a while but haven’t made much progress.  This conflict makes it challenging for a consumer to know if an advisor is acting as a fiduciary.  The best place to start is to ask the advisor if they are a fiduciary and see how they respond.

  1. Training at the companies FAs work for isn’t what it used to be.

Brokerage firms used to have some of the best training on earth for someone who wanted to learn how to manage money.  Michael Lewis tells a great story in “Liar’s Poker” about the training he got at Goldman Sachs and it is a great read.  I was very fortunate to come in at a time when firms were still giving great training and there is no substitute for a great mentor in your first several years.  More on that later.

  1. EQ is as important as IQ.

Most people attracted to this industry are a little geeky on math and other sciences and they like making money.  Unfortunately, companies rarely include emotional intelligence in the training they give.  This skillset is not offered in advanced degrees either – like the CFP, CFA, and ChFC to name a few.  Here is the Psychology Today definition of EQ: “the ability to identify and manage one’s own emotions…”.  I don’t think that goes far enough.   You have to dig deeper into EQ to find that one of the specific characteristics involved is Empathy.  Empathy is the ability to recognize how people feel.  In my view, in order to be a good FA you need to have empathy and compassion.  That leads into the next issue…

  1. FAs aren’t taught to address your money beliefs affecting your earnings.

There is no training for an FA in psychology, and there is no training about money for psychologists. Don’t believe me? I learned this by delivering a talk on just this topic with a Ph.D. in psychology. While two of the most anxiety-inducing subjects are sex and money, there is no cross-training between the fields of psychology and finance. It’s like relying on someone to help you get fit who never looks into what events and beliefs about health led you there. You can make progress for a time, but unless you address the underlying psychology, eventually, you’ll be busting through that lap band.

  1. Many don’t have advanced degrees like the CFP, CFA, and ChFC.

There are lots of other titles, but these are the biggies.  It is not mandatory, but having one of these demonstrates a commitment to ongoing training and learning by the holder of the certificate. These degrees also require you to certify annually that you adhere to a code of ethics.

  1. Most FAs just want to manage investable assets because that is how they get paid.

If you have real estate or a business, they may not be able to help much.  Is this a problem?  I think so.  Many of our clients own real estate and quite a few own a business.  A lot of our most successful clients over the years have one or both.  If your advisor is only interested in the investable assets, they won’t help much in these other areas.

  1. An inexperienced FA can cost you years of financial freedom.

There is something to Gladwell’s theory about 10,000 hours:  that “deliberate practice” that pushes ones skill set as much as possible is needed to become world-class in any field.  You can’t short cut mastery.  FAs don’t know a lot for their first 7 years.  They just haven’t made enough mistakes, been through a full market cycle, or gained the body of knowledge that makes a good advisor.  Also, in many of the firms that will hire you in this industry, there is very little salary to start.  New FAs are going to have to sell commissioned products to eat, and that creates conflicts and magnifies the problem of inexperience.  Without experience, an FA hasn’t had a change to build up a network of competent advisors in other fields like accounting and tax, estate planning, mortgage, real estate, property and casualty.  A good advisor needs to have a stable of competent advisors to refer out to in all these areas and more.

  1. It is easy and vital to check your FA’s training, education, and reputation.

The number one thing I have learned is no one looks up references on their advisors, or if they have had complaints against them or other disclosures that may be red flags. Start with BrokerCheck. Just type those words into any search. Type the advisor’s name in the search bar, and if they are qualified to be in the industry, their name will pop up. Follow the link they provide to check the SEC as well. Many of us started in the industry under FINRA, the broker check sponsor, and have transitioned to fee-only or fee-based. In which case, you will need to follow the link to the SEC website to check there. The link to both sites is here, and it is easy to check, so before you give someone your money, look on https://brokercheck.finra.org/ and https://adviserinfo.sec.gov/.

We believe everyone should have a financial advocate acting in their best interest, so I hope this information will help you have peace of mind.