8 Considerations When Choosing Your Financial Adviser
The quality of the advice you receive on matters of money, investing and taxes will determine what results you have for all the work you do.
As business owners, we need to wear many hats. But we're used to that. We've become quite accustomed to handling the sales and accounting and the customer service. Marketing department? That's us. Complaints? We'll handle that. After all, it's out business and our name on the line.
But one thing that many entrepreneurs fail to do early on is to hire a financial adviser. But what is a financial adviser, really? Wikipedia describes it as a person "who suggests and renders financial services to clients based on their [specific] financial situation."
At the end of the day, this person is quite frankly one of the most important people you'll bring into your life. Not only for your personal finances, but also for your business. Having the right guidance when it comes to things like money and taxes and your investment vehicles is tantamount to your success.
Now, this isn't just about getting rich. Sure, if you're already uber wealthy, you likely have a financial adviser. And this also isn't about saving your way to wealth, or finding some system to make money online. Everyone can make money. But not everyone can plant the right seeds and navigate the murky waters of creating long-term and sustainable wealth.
However, going about finding a financial adviser is something that scares most entrepreneurs. How do you actually pick the right individual for your situation? What are the metrics you need to consider? At the end of the day, it really boils down to 8 underlying ways to choose the right person who's fit for the bill.
Jim Dew, the founder of Dew Wealth Management, has been a financial adviser for over two decades now and is trusted by some of the world's most astute entrepreneurs and business owners to manage their money. Dew says that when it comes to managing your finances, finding the right financial adviser is no laughing matter.
Why is it so important? At the end of the day, it's your money. Ensuring that you're working with the right people to manage that money is quite possibly one of the most important decisions you're going to make. We've all seen and heard of the seedy underbelly of the financial services industry. We know the perils that exist when we choose the wrong path.
Not only do you have to find the right person to manage your finances, you have to understand what to steer clear of as well. There are sharks in the water if you're not careful. That much is obvious. But how do you go about identifying those that have ill-intentions as opposed to those who have your own interests in mind?
Finding the right financial adviser.
I've had a good deal of experience with financial advisers in the past. One thing that you have to avoid like the plague is getting involved with an individual who has a direct benefit in the investments they're recommending to you. However, it isn't always as clear as the light of day to identify a situation like this. There are always back channels that exist. But you should do your best to do the right amount of due diligence.
Be wary of those that try to push you aggressively into one investment over another. Your financial adviser should try to first understand your situation before trying to recommend something to you. Tony Robbins speaks about the perils of advisers, 401K and other investment vehicles taking high fees in his best-selling book, Money: Master the Game, and paying out commissions to those who brought you into the so-called fold.
According to one study on the conduct of financial advisers published by Mark Egan, Gregor Matvos and Amit Seru discovered that while there have been many highly publicized tales of misconduct, most cases haven't been systematically documented and brought to light. This was the first large-scale documentation of misconduct in the industry, and the results are rather alarming.
The study found that more than half of the households in America sought advice from financial advisers back in 2010, and that there were over 650,000 active advisers managing over $30 trillion in assets. Yes, trillion. Here are some key facts from that study.
- Over 20 percent of advisers in some of the counties in states like Florida and California have received disciplinary actions against them.
- More than half of the advisers who engage in some form of misconduct, end up keeping their jobs the following year to advise more individuals.
- Financial advisers considered to be "past offenders" are, in fact, 5 times more likely to repeat that offense than those who haven't been disciplined in the past
- Fourtyfour percent of advisers who lose their jobs due to misconduct find a new job the following year advising more individuals
Remember, a financial adviser is like your partner. Anyone who has control over your money has to be carefully scrutinized. You can't simply trust just anyone to help you out here. When you're searching for a financial adviser, here are the 8 ways you can use to find the right person.
1. Find a fiduciary
A fiduciary is a legal obligation for an adviser to put your interests first. This is paramount. Dew says that many financial advisers don't meet this standard. How do you determine if a financial adviser is actually a fiduciary? One way to find out is to simply ask them the following question. Are you a fiduciary in all aspects of our relationship?
But don't just take their word for it. If they do actually say yes, get it in writing. And ensure that it's provided to you on company letterhead. A true fiduciary will have absolutely no problems doing this for you. Be wary of those who try to walk around this simple yet important request.
2. Find a specialist
Clearly, more financial advisers are interested in working with individuals with money. But if you’re not wary, you might get plugged into a system that's designed more for a brokerage company's shareholders or for a bank than for your own specifications and unique situation.
You should ask the financial adviser who they want to work with before you launch into the specifics about your situation. If they're generalists and they respond that they want to work with "Entrepreneurs, elite doctors, inherited wealth and professional athletes," then you need to stay away. Look specifically for a financial adviser who specializes in working with business owners and entrepreneurs instead.
3. Research their background
You can check a financial adviser's background by using FINRA's background check or this SEC advisory search. Advisers are going to show up on either one of these databases. If they don't, you're working with someone who isn't registered, so be wary.
However, what you'll also discover here is any history of misconduct. Remember, those that have committed misconduct in the past are far more likely to do so again. It's also important to note that if the financial adviser has a "B" for Broker next to their name, then there might be conflicts of interest in whatever they recommend. So be careful.
4. Locate their credentials
There are two specific credentials that are the most valuable designations for entrepreneurs who are looking for a financial adviser. The first is the Certified Financial Planner certification. The other is the Certified Private Wealth Adviser certification. If an adviser is certified, it provides a deeper sense of trust. To get certified, they need to meet rigorous requirements set by the Certified Financial Planner Board of Standards.
You could conduct a variety of searches online. If the financial adviser you've been recommended doesn't seem to be the right fit, you could easily conduct a search through Barron's Top 1000 financial advisers list, or turn to a variety of other resources. Your due diligence here and time invested is well spent. Remember, this is your financial future on the line here. Don't take it lightly.
5. Assess their personality
As a fervent student of psychology, I'm always reading into certain things. Body language and other non-verbal cues send a very powerful messages. But it also helps to have face time with an individual. If you’re considering a financial adviser, assess their personality. How do they behave or respond to certain questions?
If you feel like the relationship is more collaborative, and you feel like it's equal ground for sharing ideas, then it's likely a good fit. If it's something where they're vehemently pushing you in one direction over another, especially before they truly assess you personal situation, then it could be a sign of a deeper problem or conflict of interest.
6. Discuss their advanced planning strategy
Some entrepreneurs think that investment strategy or performance are key factors to help them choose the right financial adviser. However, more so than that, advanced planning is actually the key. That's why it's important to interview any prospective adviser you might be looking to hire since no one can predict what investment strategy will do the best over the next decade.
Clearly, the financial adviser needs to be competent. But they also need to be highly skilled at advanced planning. They need to understand how to navigate and plan for taxes, managing debt, protecting your assets from lawsuits, estate planning, and charitable gifts, just as a few examples. There's an element of pro-activeness required here.
7. Find a wealth management team builder
Too often, entrepreneurs attempt to build their wealth management like a wheel, making them the hub with the financial adviser, estate attorney, CPA, corporate attorney, and insurance specialists as the spokes. The biggest issue with this configuration is that you might be great at running your business, but possibly not as good at finding the right professionals and managing your team.
If your CPA rarely talks to your estate attorney, or your insurance specialist never talks to your financial adviser, then you'll undoubtedly have holes in your strategy or come upon missed opportunities to build wealth. Instead, find a financial adviser with experience doing this, to be your hub. He or she is used to building teams like this, and you'll become the axel. By rotating the axel a small degree, you're turning the entire wheel. That translates into small planning with big results.
8. Seek a custom experience
The goal? Avoid being plugged into a system like a cog into a machine. You're not a widget. Maybe you make widgets, but in the financial services world, your situation is unique. There might be others with similar situations, but the best financial advisers know specifically how to customize your wealth management experience.
Think family office without the family office price. That's the goal. That's what you should be striving for. Not some cookie cutter or boilerplate scenario that's trying to be shoved your way. Never settle for that. Thanks in large part to today's technology, you luckily don't have to settle for that since many of the advanced strategies that billionaires have used are now available to savvy entrepreneurs.
Robert Adams is a writer, blogger, serial entrepreneur, software engineer and best-selling author of dozens of technology, SEO, online marketing and self-development books, audiobooks and courses.