5 Questions to Ask Your Financial Advisor
Feel like finding financial advice is an icky process? Struggling to find answers to your financial questions and hate feeling like you are being sold all the time? We get it. The investment industry deserves that negative perception. Despite all the "noise," good advice that you can trust is out there. We discuss how to find high quality, trustworthy financial advice. In this episode we give you 5 questions that you can ask any financial advisor or investment firm to help you determine whether they have your best interest at heart. Our 5 key questions you should ask your current or prospective advisor:
Are you a fiduciary in all situations? (What is a fiduciary? What does Fiduciary mean?)
Do you have a professional education? What are your credentials?
Do you have experience working with clients like me?
Can you explain your investment strategy easily…so that I can understand?
Do you have any negative regulatory actions in your background?
Transcript
I think, you know, when I think about that process of finding and hiring someone, whether it's a financial advisor or someone in any other sort of service based business, sometimes it can be so hard because.
I really think it's two things. One I hate being sold. It just really don't like that experience. And the second is it can be really hard to know who to trust, especially in environments where I don't really know, like I don't really know what the right thing is to do with my money
. Hello. Hello friends.
Welcome to the six-figure investor show podcast, or we show our podcast. We're podcast shows are fun, podcasts or informational. Maybe we're like fun and information. Okay, well, glad that we got that cleared up almost six figure podcast today, we're going to be talking about what Brian, how to find a financial advisor.
And before you turn away,. It's really the five questions that we think you need to answer when you're looking for financial help so that you can be confident that you find someone who's going to serve you.
Okay. So diving in, on finding a financial advisor and the questions that you need to answer in that process that you mentioned in the upfront. Brian, I think, you know, when I think about that process of finding and hiring someone, whether it's a financial advisor or someone in any other sort of service based business, sometimes it can be so hard because.
I really think it's two things. One I hate being sold. It just really don't like that experience. And the second is it can be really hard to know who to trust, especially in environments where I don't really know, like I don't really know what the right thing is to do with my money, or I don't really know how to, you know, properly document all my financial things.
Those are the things that probably, when I think about trying to find a service-based provider, especially when it comes to managing my money, that just made me go, oh, I don't really want to, I don't know. Yeah. So today we're going to talk about these five questions that you can ask yourself and you can apply it to your, whoever you're currently getting your financial advice from.
And you can also use them when you go to interview people that you might want to work with. And I think if you can answer to these five. To your satisfaction, , then you can be confident that that person is going to serve you well, and you will be comfortable in your relationship with that person.
So our five questions, and then we'll talk about each one. The first one is, are you a fiduciary in all situations, you can ask that person, are you a fiduciary in all situations? The second question is, do you have a financial education and professional credit? The third question is, do you have experience working with clients who are just like me?
The fourth question is can you explain your investment strategies simply in a way that I can understand? And the fifth question maybe surprising is, do you have any negative regulatory actions in your background? And if you can answer those five questions.
If the person could answer those five questions then at the end, I think you will feel good that you found someone that you can work with. So let's dive into those five. That sounds good. So the first question. Are you a fiduciary in all situations? I think we might need to start with a little, what is a fiduciary?
Yeah. So that's a big finance word for someone that is obligated by the regulatory bodies that are out there to act in your best interest as an investor, many advisors and investment firms provide planning and what they call advice. But if they're not fiduciary. Then at some point along the way, they're likely compensated or paid to sell investment or insurance products.
Those advisors are primarily working in sales organizations, not advisory practices, although they may call themselves a financial advisor. And that's part of why it's so complicated because everybody uses that term, but not everybody is truly focused on your best interest. So POS.
Pretty much anyone I talked to in the industry is going to say their financial advisor and they're allowed to use that terminology, but there's a group of people. These fiduciaries that you speak of that are solely incented to represent my needs and they don't have any. Back deals that they're getting.
And then there's another group that is not fiduciaries that is actually selling me products along the way. And they are receiving incentives to sell me those products. That's correct. Okay. Yeah. And it can be even more complicated that because oftentimes especially really large broker dealers, like the traditional wall street firms the representative or the financial advisor that you're talking to may say.
Yeah, sure. I'm a. And some situations, and I'm not another. So the best way to discern the true intentions and the motivations of the people that you're going to work with is to ask them straight out, are you a fiduciary in all situations? And you will be able to find people who are and they should have a really good answer to that question, and it should be simple and it should be short if it's sort of long and convoluted in disguise with a bunch of words that you don't understand, then they're probably not a fiduciary because I've never met any fiduciary.
Who wants to say, yep, I'm a fiduciary and I represent your best interests all the time. 100%. So how does fiduciaries get paid? So if fiduciaries get paid by you, the client through your fees, so you'll pay fees to an advisor and then a leader come out of your account, or you'll write them a check.
Different firms have different ways that they, that they charge, but you, as the customer will pay for the advice and the service that you receive. Commissioned salespeople are paid, you know, maybe a percentage of your money after it goes into a fund or something like that by someone else. Okay. So I want someone who's a fiduciary in all situations, because that means that person has my best interest.
Yeah. And I think as an aside, it's, it's important to note too, I've been in the industry a long time. I've never actually met a broker or a salesperson who would say I'm not trying to do the best thing for my. But what often happens is the firms that those folks work for are sort of putting them into a box that they may be able to do the best thing for their clients within that small little box, but they can't operate outside the box because the box that they're given is the box that makes the firm that they work for money.
And so again, it's, it's not a knock on people that work at different kinds of firms, because most of those people are very well-intentioned people that are trying to do the best they can for their client. But because they're not working in a fiduciary capacity their ability to do that is kind of like, okay.
I think we're good there. Yeah. So tell me about question number two. Yeah. So fiduciaries are obligated to do what's right in their professional judgment, but that doesn't actually mean they know how to provide you with the right guidance. And that's where we come to question number two. Do you have a financial education and professional credentials?
Okay. Hold the phone. You were telling me. So I started at the upfront to say that one of the things I don't like about the process of potentially finding an adviser is that I don't know who to trust. And you're telling me that is a valid concern because there are people out there who are operating and giving financial advice who are not qualified to do.
well, I wouldn't say that they're not qualified because from a regulatory standpoint, they may be minimally qualified to do so. But you would probably be surprised to learn that most security licenses, which is the way you become qualified to do that. Generally require a high school diploma and an exam.
They don't require going to college or anything else. And, another thing that I particularly find confusing is all those like three letter conventions that are behind everyone's email signature. I can't even tell you what they all mean, and I've been doing this for more than a decade, so it's really hard to distinguish between professionals.
So here's what I think you should really look for. So the first is I'm a certified financial planner. That's a specific credential to CMS. And a chartered financial analyst, that's the CFA. And those are designations that people earn the CFP certified financial planner is indicative of a well-rounded personal financial advisor with education on insurance, financial planning, estate planning investments, and other areas, charter financial analyst or CFAs or investment professionals.
The CFA exam is generally considered to be the most rigorous examining. For investment professionals and CFA's are often found at wealth management firms, a large asset management firms. So CFAs and CFPs, that's kind of where you want to start. When you say, do they have the right credentials to be able to help also certified financial planners and charter financial analyst tend to be fiduciaries because there are ethical standards that are tied to the designation.
That's not always true. So don't assume. Verify that they are a fiduciary in all situations. But generally you'll find those two things go hand in hand. The other types of designations that are out there there, they generally just focus on specific areas like insurance or retirement planning.
They're just less comprehensive. They're not bad, they're just less comprehensive. So in addition to those designations, you can look for professional degrees in business, maybe an MBA, law degrees people that have degrees in tax or perhaps CPAs and they provide additional expertise in those particular areas.
Do you look for anything in that space outside of those designations or degrees? Is there anything about the size of our practice or their years of experience or any other credibility markers that I should look for? Yeah, so I, I think the, actually the best two credibility markers come in our next two questions.
So our third question is, do you have experience working with clients like. And that's actually a really important question because just like doctors, good advisers specialize. You don't go see a heart doctor when you have a stomach problem. you go see a gastro internet in Gastrointerologist.
Yes. Yes. I don't do doctor words. Like most people don't do finance. So you want to find a financial advisor that works with people that are in your situation. If you're a doctor, there are lots of financial advisors out there that work with doctors who are professional, right. There were financial advisors out there that work with business professionals like us.
If you're a lawyer, the same thing, professional athletes, artists, entertainers across the board, right? They'll be really familiar with the unique issues that you face in your life, in your business, and they can provide really deep value and insights into the best investment strategies, risk management strategies, and tactics.
That are really applicable to you. And then the, I think, the fourth question is kind of related to the third. And that's, can you explain your investment strategy simply? Have you ever heard that? The hardest thing to do is to simplify a complex thought? Yeah. Well, I don't even need to hear it.
I think about it quite often when we do these podcasts recorded the hardest part is simplifying what appears to be a very complex thought and probably has a lot of like regulatory and historical financial components to it. And distilling that down to something that someone can easily understand while they're listening in their car.
Exactly. So if you ask the question, can you explain your investment strategy simply . Really good advisors that can explain their recommendations, probably have tons of deep expertise standing behind that simplicity. If they're making well thought out recommendations based on experience, they'll be able to help you understand exactly what their strategy is, how they invest the different components of your financial plan and how all of that ties together.
And. Your level of understanding will help you build confidence and help you be more disciplined and successful over the long-term. So if they can't articulate the why behind their strategy, I would look elsewhere. So I think if you put those two things together and you have experience working with clients like me, and can you explain your investment approach or strategy simply in a way that I can understand will help you identify somebody who's got expertise in your situation and someone who can educate you along the way we can educate you along the way.
I think, yeah. That's awesome. All right. You've given me four out of five. What is the cherry on? Yeah. So the last one is, do you have any negative regulatory actions on your background or what I call trust, but verify financial police record. It is very much a financial police record. This may shock you, but you will be surprised at the number of people who are still allowed to practice.
So FINRA F I N R E. He was the regulatory body for financial advisors and they have a website called broker check. So if you go to a broker check.finra.org, we'll put a link to that in the show notes. You can search for an advisor by name and you can verify their history. And the vast majority of reputable advisors have absolutely no enforcement history on their offender record because they've never done anything.
So, if there's anything there, you should ask really detailed questions and understand what those issues were and how they got resolved and all of that stuff. So if I look your name up on there, will I find you? I do not have the FINRA history. You will not, you will find me, but it will be blank, which is what you're looking for.
So, to recap what we talked about, there's five questions that are key to, to answer when you're looking for financial guidance. The first is, is that person, is that advisor a fiduciary in all situations, do they have a financial education and professional credentials? Do they have experience with working with clients who are like you, can they explain their investment strategies simply.
And lastly, do they have any negative regulatory actions on their background? And if you answer those five questions and you feel good about the answers to those five questions, I think you will have found someone who's going to serve you well. Awesome. That sounds like a great conversation. Thank you for that.
If I'm listening to this and I would like to ask you more of those questions, how can I get in touch with you as to Brian's? You can go to our website and you can sign up for our email list there. You can book some time to chat with us, and we would be happy to explain more about finding financial advisor and what you should look for.
And if you're interested in talking to us, we'll talk to you about that too.
Another great episode. Hopefully this one was really helpful to you guys. It's super helpful. Please go down into the show notes area of this podcast and leave us a review. Let us know if you're liking the show. We do read every, every review that we've gotten, which at the time of this recording is none.
So leave us a little luck down in the reviews, let us know what you're liking, and we will send more of that your way. All right, bye. For today, friends.