After 25 years of being in business as a financial advisor, I have sat knee-to-knee with thousands of people.
And what I can tell you is that there are a lot of different views, opinions, and misconceptions about what it means to work with a financial advisor.
Let me begin by saying that a financial advisor is a broadly used term. Various professionals such as financial planners, investment advisors, insurance salesman, tax preparers, and even mortgage originators have all been known to use this title.
So, you can understand how there could be some confusion when it comes to the type of advisor you are engaging with. This mismatch can often lead to having a bad experience with the “financial advisor.”
Now, there are times when you may have simply found a bad advisor but more often than not the problem is due to a poorly-aligned relationship and poor communication between you and the person you are working with.
While I don’t pretend to have all the answers, I can tell you that from my vantage point – actually working one on one with people – the biggest problem is with communication.
Imagine a relationship where one person has an expectation of one thing and the other person assumes something different and no one is expressing themselves.
It happens in all relationships from time to time but communication can drastically reduce the odds of misunderstanding one another. (Though, people tend to hear what they want to hear so this is not 100%.)
So, here is a tip from someone who sits on the other side of the proverbial table from thousands of people… don’t assume anything!
Ask questions and try to understand what the “financial advisor” you are meeting with actually does for their clients, then decide if what they are offering is what you want for yourself.
And be honest about it. At the end of the day you and the financial advisor are human beings.
They may be married, with kids and grandkids. They could have things going on in their life that are good or bad. They have feelings and are prone to opinions just like you are.
It is kind of like dating, you know when it is right and you know when it is not. If you don’t feel it is a good fit then the advisor is likely feeling the same thing. Don’t spare feelings, be honest and shoot straight.
I have meetings where the client tells me that I am exactly what they are looking for while others say they are looking for something different. There are also times when I tell someone that we are probably not a good fit and explain how they may be better served with someone else.
Just be honest and communicate. It saves a TON of time and keeps everyone moving forward.
Now, if you find an advisor that is doing a good job for you and makes you feel like they are doing their best to get you taken care of, then congratulations!
I would contend that this means there is good communication and a good match with what is being offered and what is needed.
On the other hand, if you are working with an advisor and there is something happening that you don’t like, then – you guessed it – communicate it.
No relationship is perfect – none. A good financial advisor will be working with you for many years and a certain level of grace is needed to maintain the relationship.
The grass is always greener on the other side of the fence and it is ridiculous to think that there aren’t going to be times when something that the advisor or the staff does rub you wrong.
It is likely not intentional and can be made right if you simply communicate.
A successful financial advisor is working with dozens of clients at a time and their staff manages multiple requests at a time, which can inevitably lead to dropped balls or short responses.
Don’t get me wrong. I am not making excuses here. I am simply shooting you straight.
Now just to be clear, I am not talking about an advisor doing things they shouldn’t be doing. That’s never okay.
On the flip side, one of the biggest problems for a financial advisor and their staff is a non-responsive client.
For the most part, my clients are very good about responding quickly and communicating with my team to assist them with their financial planning.
However, there are some who for whatever reason don’t view their financial planning needs as a priority and take days or weeks to respond to our office, which causes my team to have to take additional time to follow up repeatedly to get them taken care of.
Speaking on behalf of all financial advisors – please don’t be that person.
When your financial advisor (who is managing your money for you) reaches out to you, try your best to respond the same day.
Imagine if you tried to reach your financial advisor and they took days or weeks to respond to you. You would likely be a bit upset. Remember, this is a relationship that you have with your financial advisor. It goes both ways.
Another tip… the financial advisors staff are your friends. I have 7 staff people and I can tell you that they will bend over backwards to make sure you are taken care of and they REALLY appreciate when clients are respectful of their time.
A couple of other things to keep in mind when working with your financial advisor is that the advisor’s job is to help you arrange things the way you want them and provide guidance for what may be most appropriate for what you are wanting.
However, contrary to what you may believe, their job is not to create a rate of return for you.
On rare occasion I will have a person reach out to me who wants me to manage their money but has a specific rate of return in their mind of what they feel they should be earning on their money.
This is one of the situations where I have to communicate and tell the person I am speaking with that we are probably not going to be a good fit.
And here’s why – an advisor works off of prospectuses, third party materials and product types to build a portfolio and put in place specific strategies. These strategies are designed to help fulfill certain expectations of a plan design but they have nothing to do with rate of return.
The truth is, a financial advisor has no control over what rate of return will be achieved if any. They cannot predict the market or know how a product or strategy is going to actually perform.
If an advisor knew that they would have people lined up around the block waiting to come see them and charging millions of dollars to offer their opinion.
My point is this – have realistic expectations of what the advisor is capable of actually doing for you.
They are there to guide and direct you in all areas of your financial life. They are your sounding board for important financial decisions. They are your concierge when it comes to managing your personal economy. They should be viewed as being part of your team and having a seat at the table when it comes to money decisions.
A financial advisor can help you see your entire financial situation – your personal economy – and help you coordinate and strategically plan the details of your financial plan.
The final thing you should understand is the industry term of fiduciary standard.
On the surface you would assume that it is about doing what is best for the client and for the most part it really is.
But inside the industry this topic has caused a debate about how a financial advisor is to be compensated; should they be paid a commission or should they charge fees.
Well, to understand what this even means you have to first understand that there are two sides to our industry.
1. The money management side.
2. The product side.
On the money management side, the view is that charging a percentage to manage money is the only way to objectively offer advice on the investment chosen doesn’t matter. The advisor is paid the same regardless of what the client owns in their portfolio.
While on the product side, different products carry different compensation and fee structures leaving some to insinuate that some advisors will opt for the highest commission product.
So on the surface, the money management side seems to appear most objective, right?
Well, there is a problem.
On the money management side, there are limited options for the type of investments you can own inside such an arrangement.
When someone is engaging in an arrangement for a fee, there are certain types of programs and products that cannot be included.
In other words, you don’t have access to many of the other type of programs offered on the product side.
Do you see the problem?
One side says they are better because they charge the same regardless of what the investment is while the other side argues that they have much more to offer clients in the way of products.
So who is right?
In my opinion, there is a place for both but many advisors live on one side or the other.
There are times when one is going to work better than another but if the advisor is not properly licensed to do both then they will not have the ability – in my opinion – to offer what is best for the client.
So, my personal opinion is that if you are looking for a financial advisor, you may want to verify that they are dual licensed to offer both money management for a fee and also have their securities and insurance license to offer products for a commission when suitable.
I would encourage you to not be afraid or skeptical of either arrangement. If you are working with a financial advisor that you feel is offering sound financial planning advice to you, then they need to be paid for their time. These arrangements are simply a conduit for paying for their services and over 5-7 years, the fees or commissions associated with either arrangement are going to work out to be close to the same amount regardless of which option is used.
To wrap up, here are my final thoughts on all of this; a financial advisor that has a focus on financial planning is what the majority of people who come to see me want. They want someone who can be their advocate and work with other professionals to get their financial affairs where they want them and not be limited by licenses to get them taken care of.
This means having dual licenses and having a network of other professionals to assist in the services being offered. These services would include taxes, insurance, investments, legal, mortgage and other special circumstances requiring a specialist.
If you have a question about what you have read here or perhaps have a situation with a financial advisor that you would like to get a second opinion, let me know and I will do my best to point you in the right direction.