November 2022
BBK Wealth

Tyler Smith
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I have accustomed myself to receive with respect the opinions of others but always take the responsibility of deciding for myself.

Andrew Jackson

Retirement Plan Financial Advice

How do I choose a Financial Advisor?

Working with a financial advisor is a commitment that not only requires your time but also your money. You may be wondering if paying a financial advisor is the right choice and if it’ll be worth the investment – especially in retirement when your income is about to DROP.

If you’re on the fence about teaming up with a financial advisor, it’s important to consider where you are now and where you want your money to be in the near future. A financial advisor can walk you through complicated financial scenarios or give you investment advice. Here’s how to decide if working with one is the right choice for you.

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If you’re not an expert in money matters, choosing a financial advisor to help can be a REALLY tough decision. It’s almost impossible to know every financial topic in depth especially because they can be so specialized. Estate planning is completely different from picking the right investments, for example. Managing a portfolio is different from crafting a monthly budget.

If you’re looking for the basics – someone to answer questions and invest your savings – any advisor (including a robo-advisor) can help you do this based on your goals and risk tolerance, and charge you a modest fee. You can get started in minutes online and it’s excellent for building a portfolio.

However, if you’re looking for more advanced advice, say, for estate planning, you’ll want a human advisor and an advisor that acts human. 

Here’s what you should look for when choosing a human financial advisor

Find a real fiduciary

Retirement Plan Financial Advice

The legal guidelines around who is considered a fiduciary are less clear than mud.  Like the dirty black and brown mud…  Currently, many advisors have to act in your “best interest,” but what that entails can be almost unenforceable, except in the most egregious cases. You’ll need to find a real fiduciary.  You won’t find them at a bank, wirehouse, insurance company, or broker-dealer.    

This is true.  I’ve worked in a bank as an advisor.  I’ve worked for a business that sells annuities.  Never be afraid to ask an advisor what the word “fiduciary” means.  I bet some may really struggle….  Ask them if they own what they are trying to sell too!!

Ask the advisor if they are working for you.  They should be.  That’s what a fiduciary is. 

Unfortunately, most advisors will use that term now.  Most advisors have some credentials too.  Look past the resume and ask thoughtful questions about your situation.  If you have a retirement account – ask your advisor if they are actively seeking education on retirement accounts.  The same idea could be applied to estate planning, college planning, etc…

An advisor should be proud of their education history including continuing education.  Specifically, if your advisor is not actively growing their knowledge base around taxes – be weary.  Taxes are the largest expense you will pay in your life.  How can someone who manages wealth not be an expert at taxes?

I would not invest with any advisor who does not invest in themselves and their education.  No continuing education means they are selling a product that doesn’t need to be updated.  That doesn’t sound very good either…

How do I choose a Financial Advisor?

Retirement Plan Financial Advice

Check those credentials

Consumers looking for financial advisors should also check their professional credentials, seeking out well-recognized standards such as chartered financial analyst (CFA) or certified financial planner (CFP). These designations require their holders to act as a fiduciary.

These are not easy designations to earn.  They require work, study and competency.  They are not given away.  

Part of the code for CFA holders that exhorts them to “act for the benefit of their clients and place their clients’ interests before their employer’s or their own interests.”  The CFP board requires the same type of conviction.  If you know me, you know why I don’t work for a big corporate company anymore.  

You can verify an advisor’s credentials at the CFA Institute’s site or the CFP Board’s site. While these credentials don’t guarantee that someone is indeed working in your interest, they do indicate a certain level of education and competence, and those are valuable.

The complexities of planning, regardless of net worth, require expertise.  Do you need an advanced designation to manage wealth?  No.

Would I trust my wealth or my family’s financial well-being to someone other than a CFP?  No.  

No one at BBK Wealth provides advice without that designation.  

Are Financial Advisors Worth It?

Understand how they get paid

How does the public (or the consumer) really know what they are going to get with an advisor or a planner?  The wealth management space is over-regulated and self-regulated (not a typo) which means CONFUSED.  This has led to a mess for decades when accountability is demanded.  When you see a doctor or a lawyer, you have an idea of what to expect.  When you see an advisor…  who knows.

The advice offered by wirehouses, insurance agents, independent broker-dealers and independent RIAs is NOT the same.  Have you ever met someone who works with Northwest Mutual who didn’t have permanent insurance?  I haven’t…  that makes me sad.  

Salespeople are posing as advisors, especially those employed in a company where the main business is not advising clients, such as an insurance company or a fund management firm. In those cases, the advisor is often just selling you the company’s products and services.  Are you tired of a middle man?

The advice offered by wirehouses, insurance agents, independent broker-dealers and independent RIAs is NOT the same. Have you ever met someone who works with a Northwest Mutual advisor who didn't have permanent insurance? I haven't... that makes me sad.

While you may be more likely to find unbiased advice from an independent advisor, you’ll still want to be careful. Even independent advisors can end up being salespeople for a company.

A few questions you can ask  

Do you earn commission on insurance sales? 

Do you earn commission on stock transactions? 

Are you affiliated with a financial company that offers proprietary products?

Are you selling me a Mutual fund? Really?

 

So be very careful around an advisor that you’re not paying for service. As the old saying goes, “He who pays the piper calls the tune.”  You get what you pay for, right Dad?

SEARCH for clarity

Will there be time for questions at the end?

Any advisor should be able to explain everything clearly and to your complete satisfaction. If an advisor makes you feel incompetent or unintelligent for asking questions, simply walk away. You can’t build a long-term relationship with such an individual.

“An investor may suspect an advisor is not working in their best interest if they offer only proprietary products, charge fees without explaining why, or actively trade your account without your authorization, especially if doing so on a commission basis, where they get paid for each transaction,” says Van Sant.

If your advisor does any of these things and can’t provide a clear answer why, then you need to get out. If you haven’t authorized these transactions and the advisor’s explanation is not clear to your full satisfaction, it’s not enough to get the advisor to stop. You need to find a new advisor.

Many financial advisors make money by obscuring what they’re doing. Make sure your advisor is clear about who’s paying her or him.

 

 

Look for fee-only fiduciaries... THEY do exist!

Will there be time for questions at the end?

One way around the conflict of interest in the financial industry is perhaps the most obvious: you need to find an advisor who works for you and is paid only by you and other clients like you. Of course, that means money comes out of your own pocket, but you’re likely to come out ahead.

The reason is that various financial “solutions” such as annuities typically contain huge sales commissions built into the price. When you purchase these products, you’re paying a huge cost for the product on the advice of a conflicted salesperson, but the cost is usually obscured. Ultimately, this advice could cost you tens of thousands more than the cost of a fee-only advisor.

“The advisor should not be incentivized to push his own agenda but by always doing what is best for the client,” says Brooks Campany, regional manager at Argent Trust Company in Oxford, Mississippi. “A fee based on a percent of the assets managed is a safe arrangement. When the client’s assets increase, then the advisor’s fee increases.”

Another approach is to charge a per-hour fee for service. This arrangement may work well for higher-net-worth clients since they pay for advice once and not for how much money they have.

By sticking with a fee-only fiduciary advisor, you’re paying the piper and calling the tunes. With such an advisor, after an initial consultation, you might go back in once a year for a check-up and have the advisor adjust your plan if your life situation or financial goals change.

Find an advisor that has an opinion and can hold YOU accountable

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“Ultimately, you need to feel confident in the advisor’s competency, objectivity, and their responsiveness to your needs,” says Van Sant. “The advisor-client relationship, like many relationships, is built on trust and communication, so doing the proper due diligence in choosing an advisor should provide long-term benefits and peace of mind for all parties.”

Five (5) questions to ask every advisor

Understanding how an advisor gets paid is the key to understanding a lot about how the relationship might work. You’ll want to make sure their incentives are aligned with yours and that they won’t be taking action just to earn a commission.
Conflicts of interest are real and over time will destory trust 
Understand the advisor’s educational background and professional credentials.
The financial world is complicated and you’ll need an advisor who has shown they’re competent at handling it.
Look for designations like CFA or CFP to ensure the advisor has gone through proper training.  Associations like NAPFA and XYPN also are good indicators.
The answer needs to be YES.  If not, please tell me why…
As in any business, people leave their jobs for new opportunities, but that can be disruptive when a trusted advisor leaves without notice. They might not be allowed to contact you at their new firm and your account might get passed on to someone you’re not familiar with.  
This happened to me, it should not happen anymore.  Big companies are bullies.  They can not stop you from working with who you want.
They might say that they’re working for you, but if their annual bonus depends on them doing something else, they’ll likely act in the way that most benefits them.  If your advisor is incentivized by new account openings, checking accounts, referrals to private bank or time spent in the office – please consider stepping away from the mistake.

Retire Now with BBK Wealth

Retirement, especially now, is tough.  Let us lend you a guiding hand.

We provide complete, rapid and uncompromising support when you need it and will help you identify all the sources of income and related tax savings.

Do you want to win at life?  Share this!

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