Watch Out For When Hiring a Financial Advisor

I am fortunate to have parents that instilled good values in me. To this day, I still remember leaving a souvenir shop in Arizona with about five toy wooden snakes in my pocket and hopping in the car without paying for them. My parents made me get out of the car, return them, and tell the store clerk I am sorry. I was two years old then and learned what I did was wrong, but I will never forget it. My parents are still amazed I remember that story to this day. I remember it like it was yesterday. I think the souvenir store would survive with a few fewer toy snakes if I accidentally took them home. When it comes to your retirement and large sums of money, it is a much bigger deal because the stakes are much larger, it is YOUR retirement. Why is the toy snake story important? Because I believe this world is full of a lot of good people, but it is sometimes hard to weed out the bad ones. Finding a financial advisor that you can trust and has good values can be difficult, so here are five things to watch out for when hiring a financial advisor so that when it comes to your retirement you can have more peace of mind with who is handling it.

Are They A Fiduciary?

A fiduciary is a financial advisor that legally must put your interests before their own. They must put the best thing in front of you. It is hard to know whether or not you are working with a fiduciary unless you ask them. This is important because it is your retirement financial plan, not the financial advisors. You would think that all financial advisors would have to put your interests before their own, but in fact, they just have to put what may be suitable for you. By working with a fiduciary, they must give you something that is suitable, but it also must be the best thing for you.

How Are They Paid?

A financial advisor can be paid in many different ways. They can be paid by commission, Fee-Based, or Fee-Only. Commission is simple, they get paid a percentage based on what was sold. The conflict here is what the advisor is making based on what they are selling you. This isn’t a bad thing so long as you understand that what you are purchasing is the right thing for your plan. Sometimes, the only way they can get paid for a certain product, like life insurance or annuities, will only be a commission. Fee-Based is where they take a percentage of the total assets, which means they make more when your portfolio goes up, and make less when your portfolio goes down. A typical fee-based fee is usually around 1%. Fee-Only is typically where they get paid a fee for creating a financial plan. Usually, it is hourly based. The issue here is sometimes they will double dip and get paid both as a fee-only and as a fee-based. When working with a financial advisor, get a clear understanding so you can understand all the costs.

Who Do They Report To?

Is the financial advisor more worried about filling the corporate quota so that they can make the shareholders happy or are they working specifically for you? The person they should have to report to should be YOU. Bigger doesn’t necessarily mean better when it comes to finding a financial advisor. Bigger means they condense what they can offer so they make it easier to control and typically use a cookie cutter approach. When it comes to your retirement plan, it needs to be geared towards you and the results need to revolve around you.

Who Is holding On To Your Money?

We have seen too many Ponzi schemes as of late which has caused more devastation to you in retirement than anything else. To make sure your advisor is keeping your money safe and not in his or her pockets, make sure they are using a large custodian, such as TD Ameritrade, Fidelity, or Charles Schwab to name a few. Make sure they are not holding on to the money directly. The custodian allows the advisor to give you advice while still getting paid without having to hold on to the money. It also keeps the advisor from falsifying anything since you own the account, not the advisor, so you can see everything that is going on.

What Credentials Do They Hold?

A lot of advisors flash how many years they have been in practice, but things have changed. Think about your car 30 years ago. Before you just needed a mechanic, however, now you need a mechanic, a technician, and an engineer! Years of experience is a plus, but continuing education is a must in today’s financial world. I know very few people that still have paper stock and everything is now digital. A financial advisor with credentials like CFP (Certified Financial Planner), CPA (Certified Public Accountant) and a CFA (Chartered Financial Analyst) are all credentials that are viewed as the top in the financial industry because they all require more education and each have a board exam that must be passed in order to have the credentials. Be careful of other flashy designations as sometimes they are just designations that are more or fewer sales designations than anything else.

There are always more questions to make sure you are working with a financial advisor you can trust, but these five questions will really make you think about who to work with as well as maybe make you think a little bit about your current advisor if you have one. I like to think that we should all have the right morals and ethics, especially when it comes to retirement. This isn’t a golf game where you fudge a stroke here or there on the card or a little two-year-old walking away with a couple extra souvenirs he forgot (or didn’t know) he should pay for them. Best of luck in your search and if you have any questions, feel free to leave us a message.

Video Transcript

Vince Oldre, certified finance planner with Assured Retirement Group. I want to thank you for watching another video. I’m going to give you five things here today to watch out for when hiring a financial advisor or retirement planner. Now, I know when trying to hire a financial planner or when working with one, you want to look for one that you can trust. Trust is the biggest thing when it comes to having a financial advisor or a retirement planner. Here are the five things you can watch out for.
Number one is, are they a fiduciary? Meaning, are they going to be putting your interests before their own? Now, it can be confusing, because a lot of financial advisors don’t have to work as a fiduciary. Make sure whoever you’re working with is a fiduciary. Some people will downplay what a fiduciary means, and be careful with that because sometimes they’re just working on a commission basis like an insurance agent. Now, I’m sure they want to look out for you and they want to do what’s best for you, but again, they’re not legally obligated to look out for your best interests. They just have to meet a suitability standard. Look out for a fiduciary.
Number two is, understand how are they getting paid. Now, if they’re getting paid based on just commissions, you understand that they’re just going to give you a product that they’ll be paid on, a commission. You have to look out for mutual funds, annuities, life insurance, long-term care, all those have commissions to them. Even real estate investment trusts, which they are a hot topic right now. You have to be careful with all those because there might be a conflict of interest. They are going to be paid if you buy that product. Now, if they are fee-only, then they’re just going to create a financial plan for you and you will pay them by the hour. If they are fee based, then they’ll be paid based on a percentage of the assets that they’re managing for you. Now, a lot of financial advisors like myself, we can work on all three of those bases, and it’s important for you to know which one they’re working for at that time for you.
Another question when you’re looking at besides fiduciary and how they’re getting paid is, who do they report to? Do they report to you, or are they reporting to the shareholders? Meaning, are they working for this large bank or are they working in a firm where they’re going to be looking out for you? When it comes to your retirement plan and your financials, I believe that a financial advisor should be working for you and be reporting to you. They are going to be based on how well they’re doing based on how well they’re doing for you. Not how many products or did they meet their quota. Again, understand who do they report to.
The other question that we want to ask is, who is holding onto the money/ Now, we’ve seen a lot of Ponzi schemes as of late, and in Minnesota, one of the hot ones that we’ve always talked about is Tom Petters. One way to make sure that you avoid falling into a Ponzi scheme is making sure that a large organization is holding onto your money, like TD Ameritrade or Charles Schwab or Fidelity or Wells Fargo Advisors. They’re a large company that’s holding onto the money, not the actual firm.
For example, Assured Retirement Group, we’re a registered investment advisory firm and as well as an insurance agency. We do not hold onto our client’s money. We use TD Ameritrade, Charles Schwab, or Fidelity to help with our clients, but we’re able to work with those accounts on your behalf. We cannot take that money out of there, but we can help advise. That’s why it’s important that whoever’s holding onto your money is going to be with a large organization such as a large custodian like TD Ameritrade, Fidelity, and Charles Schwab, or you name it, a large brokerage firm. Look out for a fiduciary, look how they’re getting paid, who do they report to, and who is handling the money.
Last but not least, look at their credentials. There’s a lot of credentials out there, we call it alphabet soup, right? There’s a lot of financial advisors that have a lot of letters after their name. To keep it simple, look for a financial advisor that has a CFP after their name, certified financial planner. A CFA, chartered financial analyst, or CPA, certified public accountant. Typically they will be the best for you, because they have taken extra steps or more education to help you as a person that’s in or near retirement with your financial or retirement plan. All three of those designations have board exams that all people have to pass to have those designations after their name. The other designations do not require a board exam for them to pass to have those designations after their name, so be careful.
Now that you know there’s five things to watch out for, number one, are they a fiduciary? Number two, how do they get paid? Number three, who do they report to? Number four is, who is holding onto the money? Number five, what credentials do they have? That will help you find another financial advisor or work with a financial advisor that’s going to work with the retirement plan that you can probably trust. Trust, again, goes a long ways in this industry. Trust goes a long ways with our clients. That’s what you need when it comes to your own retirement plan.
To help you start to find a trustworthy retirement planner, go through those five questions and you should find one that will work well with you. If you have any questions, feel free to give us a call or email us, or even come to one of our events by going to our events page. Go to www.assuredretirementgroup.com/events and you can sign up for one of our events if you so choose to, or just pop us a message and we’ll answer your question. Until next time, I’ll look forward to speaking to you.

5 Things to Watch Out For When Hiring A Financial Advisor
5 (100%) 16 votes

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