Did you know there are over 686,000 financial advisors in the United States as of 2017? That means there are a lot of people out there giving advice about financial matters and getting paid for it. Of course, that’s fine – but if you’re wanting to work with an advisor to build wealth, there are some things you should look out for.
On this episode, I want to lay the groundwork for everything to come by giving you 9 tips I’ve learned from my experience as a financial advisor that will help you find the perfect person to advise you about financial matters. Listen carefully, take notes, and apply them to your search.
I’m going to fill you in on a few of these tips below but listen to the entire episode to hear all nine.
Outline of This Episode
- [0:28] Reasons you may be trying to find a financial advisor
- [1:03] 1: Work with a true fiduciary advisor
- [2:26] 2: Make sure the advisor has a formal education in finance
- [3:47] 3: Work with a planning expert who runs multiple scenarios
- [5:21] 4: Work with someone who has been managing wealth for at least 10 years
- [6:36] 5: An advisor who has an evidence-based philosophy and non-customized portfolios
- [9:29] 6: Fees are transparent and easy to understand
- [10:25] 7: Make sure your assets are held at a 3rd party custodian
- [11:30] 8: You want an advisor who has a record of compliance
- [12:11] 9: Make sure you enjoy working with the individual you choose
TIP 1: You want to find a financial advisor who is a true fiduciary
Are you familiar with the term “fiduciary?” It’s an important word when it comes to finding a financial advisor.
Fiduciary: Placing another person’s interest above your own
When you’re hiring someone to advise you about what to do with your money or to recommend investments, you want someone who is working for you first and foremost, not someone who might have a stake in the game that motivates them to look to their own interests first.
An easy way to find out if your potential advisor is a true fiduciary is to ask a simple question: “Are you affiliated with a broker or dealer?” If the advisor answers, “Yes” then there is potential that they will not be working for your interests first – they are not a true fiduciary.
TIP 3: Look for a planning expert who works with multiple scenarios
Creating a comprehensive financial plan takes a lot of work. It’s the process of projecting your financial life into the future to figure out the best financial decisions to make now. That requires running many different scenarios to answer the big questions like…
- When should you retire?
- When should you file for Social Security?
- Should you downsize your home?
- Should you purchase a rental property to add to your monthly income?
If you find a financial advisor who doesn’t approach financial planning in this way, you’re missing out on a huge benefit that you need. Vanguard published a report that stated that a good financial advisor can add the equivalent of 1.6% in annualized portfolio returns through advice alone! Make sure you work with a planning expert who can run those scenarios to give you the best advice – it’s very important.
TIP 4: Work with an advisor who has been through the entire market cycle
There are likely a lot of younger financial advisors who are genuine, good people – but the financial industry is one where experience matters. Why? Let’s consider an example: An advisor who has not been working long enough to see a full market cycle of ups and downs in the economy is not going to have enough experience during the down times to advise you well. They might panic and advise that you pull all of your investments just as the market hits the bottom. But a seasoned advisor will have the personal knowledge to not only know that course of action is a bad idea, but why it’s a bad idea, and what you should do instead. How much experience is enough? I advise over 10 years of experience.
TIP 7: Make sure your assets are held at a third-party custodian
If the person who is advising you about your finances is also holding your assets, you run a huge risk of fraud taking place. The Bernie Madoff scandal happened because as an advisor, Madoff had access to the assets of his investors. That’s not safe or secure.
The best situation is for your advisor to work with a discount brokerage firm like TD Ameritrade, Fidelity, or any of the others. Just make sure the firm they work with is a discount firm so that you don’t have to pay higher fees for the trades your advisor makes.
Again – there are several more tips covered in the audio for this episode that you need to know if you’re trying to find a financial advisor, so be sure to listen.
- The SEC website
- TD Ameritrade
- Charles Schwab
- 9 Essential Tips To Hire A Financial Advisor PDF
Connect With Ryan Hughes and Bull Oak Capital
- Podcast (at) BullOakCapital.com