4 Steps To Finding A Good Financial Adviser

No one would take free advice about a suspicious mole from the face-cream saleslady at Macy’s M or ask their barber about their sore tooth (even though we used to go to barbers for dentistry). So why do people take financial advice from broker dealers and conduct their most intimate and precious money conversations with salespersons?

According to the 2019 report from the Financial Industry Regulatory Authority, financial professionals’ self-regulatory body, there are about 630,000 federally registered representatives. There are also about 13,000 registered investment advisors operating in the U.S. These people share the common name “registered,” but they are about as different as a personal trainer is to an orthopedic surgeon.

Since tax time is a traditional month for money hygiene, many Americans will be reviewing their finances soon and considering which type of professional they should work with. With this in mind, here are the four things you might consider doing in the next few weeks.

1. Fire your “guy” – your guy could be a woman, but it’s that person you refer to in the sentence, “I have a guy who helps me with investing, he’s really good.” That guy. Why scrutinize your advisor? Most advisors are conflicted. Brokers and insurers sell financial products and they typically call themselves financial advisors and retirement planners. A salesperson poising as an advisor can, over time, cost 25% of your account balance in unnecessarily high fees and the wrong products.

2. Find the right kind of advisor. See Ashlea Ebeling, Forbes writer, on conflicted advice. In any internet search for financial advice you’ll see lots of advertising from firms boasting innumerable professional certifications. Concentrate on the roughly 86,000 people who are CFPs (certified financial planners) by using the National Association of Personal Financial Advisors to find a registered financial advisor. You are aiming for a fee-only (not fee-based) adviser who abides by fiduciary duty.


3. When you get to the person with the right credentials, ask two key questions and only accept yes as the answer. If you don’t get yes, comment on the weather and leave politely. First: Will you put in writing that you do not accept commissions, referral fees, and that you are flat fee-only? Second: Will you sign a fiduciary oath?

4. Come prepared to the meeting. You are your own first best adviser. Don’t hand over power, knowledge and responsibility. It is an adult-to-adult relationship. You don’t want a pseudo husband, daddy or authoritarian. Also, the more homework you do, the cheaper and better will be the advice.

Some homework to consider: Know how much you spend, prepare a budget and assess your wealth and debts. Most Americans’ wealth consists of Social Security, retirement accounts, and housing wealth minus mortgage, credit card, and student debt. List the value of all of it.

As Joseph Biden takes office, he will be signing some executive orders on public health, climate, racial justice and economics. It doesn’t look like an executive order for financial advice is on the docket, but I expect that the Department of Labor will take up the Obama-Biden administration’s initiative on ending conflicted advice, which the Trump Administration abandoned (leading to soaring sales of financial products).

President Biden, moving to better regulation of financial advisors can’t come too soon. Retirement income is falling short as we see more people headed into their retirement years and a nation headed into retirement crisis.

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