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When and How to Choose a Financial Advisor

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Choosing an Advisor Series. Part II.

written by Brian Dudley, CFP®  Founder+COO




As I stated in the first part of this series, I am biased when it comes to these questions. I’ll admit it. However, as I also have always said, Tom Brady has a throwing coach, so for you, doesn’t it make sense to have a financial coach? Yes, but again, not just anyone.

Question: When do I need a financial advisor?

Yesterday. No, seriously. If you do not have one, hire one. I am a big believer in having someone help you make financial decisions. Why? Because an advisor is a wall between you and bad decisions, or should be, at least. People are emotional and emotions affect decision making. A person who understands what you are trying to accomplish can help you with your decision tree, introduce other experts, and eliminate emotions from the decision process. If you start to make really smart financial decisions at an early age, the benefits will be exponential down the road. If you are in your late 30s, you haven’t missed the ball, either. Early 40s, you still have time, but get going. There are still adjustments that can be made throughout  your lifetime, but mistakes can add up, so the sooner you adjust, the better. 

There are options for you, too. For example, we have hourly consults on whatever topic you’d like to discuss, flat fees for planning on multiple topics,  or full comprehensive planning with management of your finances by our team. We aren’t alone, either. Whatever way you prefer, hire someone (or a team). Just make sure they are the right someone for you.

I realize that when you are in your 20s or 30s, it may be hard to find an advisor that will help unless you are a baller who sold a startup, made it to the bigs, or inherited massive wealth. Typical thought is that the “best advisors” are at big firms and have large minimums (we will address this later). Why? Well, in order to have a service model that accommodates their clients’ needs (or their spending habits), they can only take on a certain number of clients with a minimum amount of assets to be managed. The service component is true, but there are a lot of advisors who aren’t at big-name firms who are great advisors that can help. There’s also the pay factor (it’s  a secret, don’t tell). Investment advisor representatives (IARs) at registered investment advisory firms make more on what they charge you. That’s right. No big chunk taken by the corporation for the big name.

If you find that you aren’t in that baller category in your 20s or 30s, but you're building something big (emerging wealth), you may want to use these catalysts as points of when you should begin your search for an advisor if you have yet to hire one (not in any order).

  • You got a job. Sweet! All that hard work is now bringing home the bacon. Maybe they offer a retirement plan at work? Maybe they don’t so you need to look at other options? It’s time to get some help. 

  • You move in with your future spouse. Yep, time to talk money. Talk about a mood killer, right? Couples who invest together are best together. Wait, what!? Corny, but being on the same page financially will also help alleviate any financial issues that can cause tensions in any relationship. 

  • You get married. You wanted to wait until it was official. Congratulations are in order! Now see above.

  • You have children. Oh, boy (or girl)! Now life has become a bit more complicated. Date nights need planning. Sleep, well, not much at first. The reality is that kids cost money and lots of it at times. Food, clothing, daycare, doctor visits, activities, school costs including college down the road. The list goes on and on. Plan for it.

  • You leave your company. Chances are you have retirement funds at your old company. If you leave that company, you now most likely have the option to move your old retirement account. Should you do it? There are options you should consider on what you should do.

  • You start a business. I’d say you should have an advisor prior to starting the business, but this was grass roots. You decided to follow a passion, and the finances came second to the dream. I love it, to be honest. Get after it, but through that process, it may make sense to make sure you are making the best financial decisions while you run your business. 

  • You’re getting a divorce. Life happens. There are items that need to be addressed during this process and managed after. 

  • Someone in your family passed away. If you inherit funds, making a decision with the money (usually emotional) without help is not the best path. Hire someone who understands that you are grieving and works with you with your best interest in mind. 

  • You get sick. Again, bad things happen. It’s unfortunate, but there is help. Focus on getting well, but also make sure your finances are in the best shape possible (okay, enough of the negative events).

  • You sell your business. Before you sell, you should work with an advisor ahead of this process. Let’s say you sold without having one, however, and now have money to work with. It’s time to speak with an advisor.

  • You won the lottery. Dammmmmmm, you lucky. Don’t be on a future reality TV show on how you lost all of your lottery winnings. It’s not a good look.

  • You retire. Retirement has a lot of decisions now that you are moving from accumulation of wealth to decumulation/estate planning. It’s very important that your team of advisors (investment/planner, accountant, and attorney)  are on the same page. 

  • You bought a home. Ahead of this decision, it may make sense to hire an advisor to make sure the home you are looking at is best for your financial situation. Remember, mortgage brokers care if you qualify. They will max out what they can. Realtors want big commissions. The pricier the home, the higher the commission. I am not saying either of these professions aren’t honest, it’s just how they are built. An advisor usually has a connection in each one of these fields and will make sure they are working for you, and not just for them.

These are many examples, but there are more. You have stock options being offered as compensation by your employer (or you are thinking of offering them as an employee), you need to set a 401(k) up for your employees as a business owner, or maybe you are looking at investment properties.  These are all decisions that can be made with the help of a pro. It is in your best interest to have a trusted team to work through these decisions. Hire an advisor.

Now that we have talked about the when, let’s talk about the how.

Question: How do I hire a financial advisor?

Ahhhh, I get it Brian, here comes the part where you say that YOU are who I should hire, right? Well, yes (end blog). No, really, yes, but it has to make sense for both of us. This isn’t a one way street as an advisory relationship is reciprocal and anything less isn’t going to last long term nor is it a great fit. Am I the only advisor who you should hire? Listen, those who know me understand that I come with a certain confidence. I believe in my abilities as a financial advisor. However, those who know me know I also am fairly in tune with what I lack. I do not believe I am all things to all people, because the truth is, not many people are. So let’s try again to answer if I am the only advisor who you should hire. No. There are advisors who match well with you. In fact, there are other advisors who match well with you, and then, there are probably ten more that would’ve been a good match too (and that’s within your geographic area). The problem is, how do you get to those perfect advisory matches? Where is the Tinder for advisors (man, ever since Match launched, I have wanted to launch this. There are some firms who try, but I’ve yet to see this come to the mainstream)? The truth is it’s not easy. You should do your own diligence. If you are in that process, or believe you should start, here are my thoughts on different ways people go about hiring an advisor and how you can go about finding Mr. or Mrs. Right (advisor) for you. Again, these points are not in any specific order. In fact, most will start with looking online and work their way back. Whatever works for you, do it.

  • Ask your parents. Boorrrringg. (kidding, well, kind of.) If your parents are wealthy, their advisor will most likely take you on as a client as a favor (knowing one day you may have the assets required to work with them). If the advisor hasn’t actively pursued your parents to have you in the room for a meeting to discuss planning topics ahead of you asking for help, then who knows if they are right for you. Generations consume information differently. Be careful assuming your parent’s advisor is the right one for you (oh, and if your wealthy parents are retired, when will their advisor retire?). You’re hiring an advisor for the long term. If you like their advisor, ask about their succession plan. If they have one, then maybe it is a good fit. I guess it’s not so boring.

  • Ask your accountant. This one is tough for me. I’ve built half of my business at Pinnacle Private Wealth by working directly with an accountant. She’s amazing. I was the first advisor she has worked with that she feels is putting her (now our) clients first at all times and is able to communicate in a fashion that’s built for them. She’s tried working with three others  (humble brag?). However, there are so many accountants that are really good at what they do, but they are awful when it comes to planning.  So why trust them with who you should work with? Some just aren’t able to translate what they have seen as success (through thousands of different scenarios) into what success can be for you.  I’d be careful here. If the accountant is willing to put their reputation on the line by referring you to an advisor, ask them more about their relationship with the advisor and why they are referring you to them. Then go do your own research. The internet is a magical tool. Which leads me to the next way people find an advisor.

  • Google it. Seriously, google financial advisor and see what comes up. The Google algorithm will provide you with advisory firms that are within your geographical area. They will also populate sites that are actively engaging with their clients via their site. If you are younger and haven’t found a planner yet, wouldn’t it make sense to look for someone who has an updated website? Next, look at the advisor’s site, blog, content on who they are and what they do, etc. If they seem like a match, write them down. They may be on your short list. After you Google it, continue to use Google but use what you do for a living as a pretext. For example, “financial advisor who helps business owners.” You may find that a different list populates. Continue your site diligence and write down your favorites. (note-you can Google advisors who help financially plan for xxx as opposed to your specific profession and you may get some results you may like).

  • Ask a friend. I would say don’t ask just any friend, but ask someone who you know has been successful. See what they like and dislike (hopefully more of the first) with their advisory team. Ask them for an introduction after you check out their site or social and find that you like what they are saying online. Meet with them and get more information on how they can help.

Now there are other ways I am sure to find an advisor. In fact, maybe they marketed to you via social media and now that is why you are doing your diligence. The important thing is to DO YOUR DILIGENCE. You should find an advisor that speaks to you, if you will. Trust is key here. In addition, they should have the credentials to back their ability to connect with you. If you’re hiring a planner, what are some of those credentials? Here are a few I believe in. Hire a planner who carries the CFP®️ certification (or at least has 10 years or more of experience in handling wealth if they do not carry this designation).  This isn’t to say that advisors who have been in the game for less than that time aren’t offering good advice. They just haven’t seen enough, yet. I’d argue if they had a planner on their immediate team (not the planner that travels as a corporate resource and doesn’t really work with that advisor) would also suffice given they have an immediate resource for you that works in tandem with them. If the person does not have their planning designation, but does carry their CPA or EA, then they may also be a good resource given their background in tax. Next, hire a fiduciary when developing your plan. Hiring a Certified Financial Planner carriers a fiduciary responsibility. This isn’t a legal obligation, however, as it’s just built within the designation. If you want the legal component of a fiduciary, make sure you are working with an advisor who charges fees to build your plan and manage your money. If that advisor happens to be able to also implement your insurance (like we can), make sure that they disclose that they receive additional compensation for helping you implement it. Note: Don’t be fooled by the holier-than-thou RIAs that warn of those who receive commission on insurance. Some of those same RIAs are charging higher fees as fiduciaries to just “manage” your investments by buying index or mutual funds (and that’s it). You can get that at Vanguard without the pomp and circumstance of “we are fiduciary fee-only advisors and all who aren’t are less worthy.”  They also refer business to insurance advisors who then refer business back to them. This is what is known as quid-pro-quo and allows “fee-only advisors” a way to say they don’t get paid on commissions all while getting it on the back end in the form of a referral. I don’t mind this, to be honest. This is how business works. I  mind the condescension of some firms when they tell people to only look at fee-only advisors such as themselves when they do business like this, that’s all. I feel if you hire an advisory team, they should be able to implement all of the actionable items outside of legal and tax for you. That’s my opinion. It is also my opinion (because I have met and worked with them) that there are plenty of advisors at wirehouses (Merrill, Morgan, etc.) who are great, too. The key here is to look at the proposal for your financial plan itself. If the advisor is leading with insurance or a commissionable product such as a loaded mutual fund  as the primary solution, then you should walk away. Insurance is insurance, and unless you engaged the advisor to develop a plan solely for the use of adding protections to your financial plan, then they probably aren’t really putting you first if your plan is insurance heavy. 

I could break down my opinion on actual places to invest your money such as a big wirehouse firm (Morgan, Merrill, UBS, etc.), a registered investment advisor, a hybrid registered investment advisor, an independent, a discount broker, a bank, etc. but that will come in a separate piece. I may add an addendum at the end of this series to share my view on all of your options. I’ll try to be unbiased there, too. 

Next up in the series of “Choosing an Advisor,” we will talk about the perception of value vs. actual value.

Until then, thank you for reading.

-Brian


Questions or comments? Connect with me here.

Addendum

6.8.2020

As stated above, I am following up on part II with a breakdown on places where advisors work. The goal here is to provide you with my personal background or knowledge of these institutions without adding  an opinion (well, not much of an opinion). The next and final part of this series, “The Perception of Value” will touch on my views of perceived vs actual value for clients and will be available later this week. This section is for self-educational purposes.  My advice, as written above, is for you to do your diligence and choose what is best for you and your family. Now, here are where advisors work.

  • A wirehouse. The biggest out there are Morgan Stanley, Merrill Lynch (Bank of America), UBS, and Wells Fargo. These advisors will boast access to capital markets, research, help with operations, etc. It is true, they are well-known names with thousands of advisors within each company. They spend millions of dollars on advertising and have highly recognizable brands. The big name can be enticing. Note: Be aware that Merrill Edge is not typically the same caliber of a full service Merrill Lynch relationship. These advisors can be paid on fees and commissionable products. They also may share revenue from cross-selling to other areas of the firm.*

  • A discount broker. The biggest and most recognized names here are Charles Schwab, TD Ameritrade (acquired by Schwab), Fidelity, eTrade(acquired by Morgan Stanley), and Vanguard to name a few. Don’t get it twisted, these are accounts that you manage. The institutions may offer help trading or resources via their websites, but you are on your own here if you do not opt for the advisory services. There is no advice, so there are no added fees other than annual costs of having an account open.  Note: Schwab, TD, Fidelity, and Vanguard all have private clients services which do offer full financial planning offering for a fee. If you work with an advisor at one of these firms, you may also notice the funds/ETFs they have you invested in also carry the company’s name. The investment strategies provided are also asset allocation models driven at the firm level in most cases. Hardly independent or custom advice. Advisors at these firms are typically paid salaries plus bonuses, profit sharing, etc.*

  • A private bank. If you have $5M liquid and even more in assets ($5M liquid is variable on the size of the institution. Example: Goldman may start closer to $25M and Boston Private may start around $1). These advisors are tied to teams within the institution. Goldman, US Trust (Bank of America owned, UBS, Morgan, RBC, Wells, JP Morgan are some of the top players here. If you have these assets, these teams are typically well groomed. I have seen investment strategies offered to clients through these services. Traditional investment management is very similar to their retail (or everyday people’s) portfolios. What differs greatly is access to private investments, unique liquidity needs, and managing the family wealth with a team of advisors in house. Again, in this space, the big name can be enticing. Advisors are paid differently depending on the firm and role within the advisory team. There is usually a base salary plus bonuses and profit sharing in this space.*

  • A mutual insurance company. In most cases, the advisors at these firms lead with planning services that almost certainly start with some level of buying insurance as a foundation. If that happens to you, walk away. They will sell you more than you need and the ones who have been there and done well, can convince anyone that it is a great idea to have more insurance. I am sure there are some great advisors within the big names like Northwestern Mutual, NYLife, MassMutual, etc., but they are insurance first in most cases (like any firm, there are exceptions). They may, however, be a great place to implement an insurance strategy as part of a bigger financial plan if you are working with a fee-only planner who does not carry their insurance licenses. Advisor's pay is created from a combination of insurance commissions and fees for advice. Insurance commissions represent the biggest piece to most advisors pay at these institutions.*

  • Bank advisors. Every major bank has access to a financial advisor. I was previously at Santander Investments, a part of Santander bank. Locally, you have Santander, Citizens, Webster, and People’s United, just to name a few. There are also tons of local banks and credit unions, of which most have access to advisors attached to their location. Advisor competencies and skills at these firms vary widely (to be nice). At my time at Santander, I met some intelligent advisors. I also met some that I questioned why they were hired.  I met those who only sold only commissionable products (probably not who you want on your side when looking for a financial planner). I also saw advisors who ran their business with the foundation of planning and building fee-for-advice businesses within the bank structure. The key takeaway is to tread carefully in this space for there is such a variance in talent level of the advisors banks hire. These advisors can be salaried, paid by fees, paid by commissions, or be a combination of any of these pay structures.*

  • Independents. If you have an advisor at LPL, Ameriprise, Raymond James, Lincoln, Met, AXA, they are known as independent advisors. Independent advisors typically have autonomy to run their own business and use a  broker/dealer for support. An independent advisor may be a solo-advisory practice or work with a team. Just like anything, there are great independent advisors and there are advisors who have taken advantage of clients with lures of high returns while generating massive commissions on private investments structures. If an independent advisor leads your meeting with a commissionable product, you probably are not in front of one of the good ones. If they lead with planning and fee for advice services, you may have found a winner. These advisors are paid by either fees, commissions, or a combination of both.*

  • Registered investment advisors. These firms are independent, typically use a larger institution such as TD Ameritrade (soon to be Schwab), Charles Schwab (soon to be consolidated with TD into Schwab) or Fidelity and offer complete independent advice for their clients.  You will see names that may be unknown, or even tied to the owner themselves. There are many pay structures for advisors at an  registered investment advisor. The client, however, is always charged a fee and only a fee-for the advice provided. Registered investment advisors carry a fiduciary duty to their clients at all times.  Knowing that the fiduciary standard exists at all times, this is a great place to start when looking for unbiased advice. Remember, just because they are registered with the SEC as an investment advisor, it does not make them the perfect fit for you and your family. If you are in step one of where to go to find an advisor, this type of advisor will be one of your best options, in my opinion. 

  • Hybrid registered investment advisors. These are advisors who have access to a broker/dealer (see independent above), but also have either their own or a corporate owned registered investment advisory firm (also see registered investment advisors above). This combination allows advisors to hold assets where appropriate for clients. A fee is not always appropriate if a client is buying an investment and holding that investment for the long term. A fee is not an option if a client’s parent needs to purchase an immediate annuity (maybe for Medicaid planning purposes on recommendation of the family attorney). Some registered investment advisory firms will just outsource this type of business. In the case of Pinnacle Private Wealth, our parent has chosen this model to accommodate all of our client needs. Advisors can earn income from fees, commissions, or both under this structure. Unless we are helping acquire life insurance, Pinnacle Emerging Wealth runs under the fee-for-advice structure and maintains its fiduciary capacity when helping manage client’s wealth.*

*Please note that with RegBI (regulation best interest), IARs (investment advisor representatives) are able to use the term advisor. Solely Register Representatives are no longer able to use the term advisor.


Final note

I may have missed some firms, but this is a fairly lengthy list of where advisors work. I mentioned above that there are great advisors at all of these institutions or firm types. There are also bad ones. So how can you  use this list as a guide to where you should look for a financial advisor?  You shouldn’t necessarily. This is just a reference to where advisors work. The right one for you may be at any one of these institutions (eh, maybe). If you read the section above asking the question of “How do I hire a financial advisor?” you will find my opinion on things to look for when doing your search at any one of these firms.

Again, thank you for reading. 

Questions or comments? Connect with me here.