There are upwards of 300,000 people working in personal finance. There are over 200,000 financial advisors.
What’s important is this; there are a lot of people talking to other people about their money.
“Are they all the same?”
No.
“Is it confusing?”
Yes.
“Does it need to be?”
No.
“How do I figure out who I should talk with?”
That’s what I’m going to help you with.
“Why should I listen to you?”
I’m uniquely qualified to write this because I’ve done a lot of things in the world of personal finance. I spent 10 years with a Fortune 100 insurance and financial company. I currently own and operate an independent RIA firm. And I run a financial coaching and wellness company.
My goal is to give you the practical and actionable information you need to make good decisions about your financial future.
Here’s what I’m going to talk about:
Let’s get started.
The different kinds of professionals working in personal finance
There was a time when it was clear who was who, and who did what.
From 1933 to 1999, the Glass-Steagall Act was in effect. It put limits on banks and financial firms and kept them in their respective “lanes.”
In 1999, the desire and appetite for de-regulation brought about the repeal of the act. The effect has been highly diversified financial services firms.
Today, there are more than 200 professional designations for folks in the personal finance industry, the most well-known being CFP and CFA.
There are an ever-growing number of titles professionals use to describe the work they do.
All of that can equal confusion for consumers.
Here are the main types:
Fiduciary investment advisor: These professionals are legally bound to act in their client’s best interest. They commonly charge fees for planning instead of receiving compensation from the sale of products.
Independent investment advisor: These professionals work for smaller firms and commonly charge fees for planning instead of receiving compensation from the sale of products. “Independent” indicates they are not affiliated with a large financial institution.
Investment advisors: These professionals charge their clients fees for planning instead of receiving compensation from the sale of products.
Brokers: These professionals are commonly associated with large financial institutions (Fidelity, Merrell Lynch) and earn compensation from the sale of products.
Financial services professionals: This is where things get a little trickier because it’s a very broad category and many different kinds of professionals can use this title. People who work for insurance companies often refer to themselves this way. They often earn compensation from the sale of products.
Financial coaches: These professionals carry no licenses, sell no products, and do not provide advice. They coach beneficial behaviors and help people develop positive financial habits. They often charge a flat or hourly fee.
Portfolio managers: These professionals focus only on managing the investment portfolios of clients. They often charge a fee to manage a portfolio.
Family offices/private wealth managers: These professionals work with high net-worth individuals and families. They often charge a fee for service.
How these professionals work with clients
As you can see, there are a lot of different types of professionals holding themselves out as some form of financial advisor. Now you know the types, let’s talk about what they actually do.
Charging fees: Many advisors charge a stated fee for managing investment portfolios, commonly referred to as AUM (assets under management). If an advisor charges 1% to manage your portfolio, and your portfolio is $100,000, the advisor will earn $1,000 a year.
Earning commission or compensation from the sale of products: Just as it sounds, this type of advisor is compensated from the financial company they are representing when they sell one of the company’s products.
Hourly or flat fee: This model has been growing in popularity. The professional will charge you a stated fee based on the amount of time they will spend working with you.
Process-driven or transaction-driven: This is a very important distinction. Process-driven means the professional will take you through some type of process to determine your current situation, your desired future situation, and will then present solutions to close any gap(s). Often, there will also be an ongoing relationship. A common form of this is retirement planning.
Transaction-driven means there is a specific need which is being filled. Often, there is not a need for an ongoing relationship. A common form of this is purchasing life insurance.
Some advisors will do a combination of these, which is why it’s so important to ask the right questions of the person you’re speaking with.
The questions to ask a financial advisor (financial professional)
While this is by no means a complete list, asking the professional you’re speaking with these questions will help you to determine if you’d like to develop a relationship with them.
All too often, we are uncomfortable asking professionals how much they earn. But that’s one of the most important questions you need to have answered. High-quality professionals will be very comfortable answering all of these questions.
If the person you’re speaking with is not comfortable answering them, that’s a red flag.
What’s your philosophy on working with clients?
How do you get paid?
How much do you get paid?
What products do you sell?
How do you handle when clients need products you don’t sell?
Are you a fiduciary?
Can you explain total fees/expenses/costs?
What does your finished product look like?
Will you provide me with a full financial plan?
What will our ongoing relationship look like?
How often will we meet to review my situation?
Should you work with a financial advisor?
We all have biases and blindspots. We’re carrying a lot of baggage around with us. Working with a professional can help us avoid missteps.
Then there’s the reality that the world of personal finance is immense. There’s investing, insurance, tax, and estate planning to name a few. There aren’t too many of us that have a high level of literacy in every area.
You can certainly learn it on your own.
For example, if you lack literacy on investing, you could read blog posts and listen to podcasts, read a book or take a course, or work with an advisor or a coach.
For example, if you are experiencing gaps in your planning, you’ll need to learn more about creating a cohesive plan. You can do this through personal research or through engaging with a coach or an advisor.
To overcome what’s holding you back may require resources.
Where can you get the new knowledge you need? Knowing where you can go for information and knowledge is extremely important.
Do you want to spend time on this?
Some people really enjoy personal finance and investing, while others would prefer to not spend much time on it. There’s no right or wrong answer to this question. Again, it’s important to be honest with yourself.
Will you spearhead this effort, or will you find partners?
I think these are the questions you’ll need to answer. If you’re not going to do it, then it may be prudent to find someone to work with.
The three models for achieving financial success
Whatever you’re trying to get better at, if it’s personal finance, relationships or your leadership skills, there are three models for doing it.
Obviously, the more you can interact with an expert, the better. But if you have the time and attention, you can most certainly piece everything together on your own.
Potpourri and closing
I mentioned there are over 200 (and growing) professional designations on the market. Earning one of them takes time and money. The benefit is new knowledge and certification.
What do they mean?
They mean that you spent the time and money to earn the designation. Does having a CFP make you a “good” advisor? No. Does it make you an honest advisor? No.
Are there good and honest CFPs? Yes.
I know hundreds of great CFPs, and I know some CFPs that I don’t consider good advisors.
Bottom line: don’t let a designation be the deciding factor for working with a professional.
Ask for introductions
If you’re looking for an advisor to work with, ask people you know and trust for introductions to professional they work with. This can be a great way to meet a good advisor.
My opinion: If you’re wanting to work with an advisor, work with an independent fiduciary advisor.
We’d be thrilled to connect you with one of our Certified Partners for a no-cost conversation.
If you’re ready to take control of your financial life, check out our DIY Financial Plan course.
Let me know how we can help you on your journey to financial prosperity!
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