Financial Advisors Are Not Just for Trust Fund Kids

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I know it’s hard to ask for help. I am the poster child for the “I got this on my own” mentality with a “Miss Independent” ringtone. But, even I, the Rich Bitch herself, have help with my own finances — and lots of it! Doctors have doctors. Shrinks have shrinks. Trainers have trainers. We all need help, even the experts. I would recommend that any and every Money Minute reader hire a financial advisor.

There are probably 200 different names for financial advisors, many of which are not regulated by FINRA— which is the oversight body that watches how investments are pitched to potential investors. And, oftentimes, their “credentials” are pure puffery that aim to razzle-dazzle those who don’t know the difference.

Don't get it twisted.

The biggest misconception about finding a financial advisor is thinking that your broker is one. Your broker is not on your team.

By definition, brokers work for financial services companies and are not required to do what’s in your best interest. The only way brokers get paid is by selling you the financial products their company manages. They might talk a big game, they might act like your friend and send you holiday cards, but their only M.O. is to get you to put your money into the financial products that are most profitable for them and their companies.

So, let me say again, brokers are not your friends. Several large-scale anonymous surveys have shown that brokers don’t practice the advice they give when it comes to their own investments. In fact, about half of them don’t even have a stake in the products they are pushing. That’s like a shady baker who doesn’t taste her own treats. Why not? The only reason could be that she knows they’re made with nasty, artificial ingredients.

The only title that you should be looking for when sourcing a potential financial advisor is “RIA” or independent registered investment advisor. These folks are fiduciaries. A fiduciary is someone who doesn’t have any conflicts of interest (and if they do, they have to disclose them) and who puts their clients’ needs first. Yes, yours truly is a fiduciary.

Not everyone who gives financial advice is a fiduciary. The financial services industry’s — aka, the brokers’ — standard is to provide “suitable” financial advice. Think about it: would you accept “suitable” food at a restaurant? “Suitable” coffee? “Suitable” friends? “Suitable” sex? I mean, I wouldn’t. And I wouldn’t want you to, either, especially when it comes to where you are putting your money.

One of the biggest differences between a fiduciary and others who might dole out financial advice is their fee structure. Fiduciaries charge a flat fee that is tax deductible, while non-fiduciary advisors charge a fee that you pay based on your investments, which aren’t at all tax deductible.

Think of a fiduciary as being your stylist and a non-fiduciary advisor being the salesperson working on commission. You’re likely paying the stylist a flat fee to make you look and feel good; and while they have relationships with brands, their ultimate loyalty is with you. On the other hand, if you walk into a department store, the sales people are only incentivized for you to buy stuff within their section, so that they can collect the commission on the sale. I get it, it’s confusing when the gals at your favorite stores act like your besties, and it may feel like they want what’s best for you, but they don’t. They just don’t. They’ve already decided that your money is theirs.

It's not all bad.

My intention is not to bash all financial advisors; the truth is that, despite my warnings (which I hope you will take seriously) there are some truly all-star ones out there who do have your best interest in mind, and having a trusted advisor who is not an RIA is better than not having an advisor at all. I just want you to know who your real friends are, and early on, when those friends can have a real positive impact on your bottom line. Finding friends isn’t hard. But, finding the right one for you and your money goals can be a little tricky.

Your search should start at CFP.net and the National Association of Personal Financial Advisors. These will give you a list of all of the fee-only advisors. It doesn’t mean they are all good or good for you. It’s like searching through the list from your state’s bar association to find a lawyer, or the medical board for a doctor; it’s a good first step to know they aren’t a quack, but it’s certainly not the last step.

Of course, you don’t have to have anyone help you, and if you don’t that means even more cost savings. You absolutely can read up and manage your investments on your own. Or you can treat your advisor like a personal trainer, from whom you get your fitness plan and then work out on your own, following the plan. But there is a lot of added value in continuing to work with a financial “trainer” as you strengthen your investment strategies and tax planning and portfolio management. It’s also nice to have a buffer between you and all the news (or “panic porn,” as I like to call it) out there about the financial world. Just never forget: not all advisors are created equal.

xo,

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