Hiring an expert to help you make a plan for your money is one of the smartest and most terrifying decisions you can make as an adult.
Most people in their 20s and 30s avoid it altogether, citing reasons like:
I don’t make enough to hire an expert
My finances aren’t that complicated
I have no clue what to even look for
Wallstreet has convinced us for decades that financial planning is for the rich; not young professionals.
And you know what? They’re right.
Most millennials don’t need a $10,000 financial plan, investment management, complicated tax or estate planning, or most services sold to the ultra-wealthy.
But don’t mistake that for NOT needing help with your money at all.
Guidance from a financial pro can help you:
Invest for retirement and avoid mistakes like not starting early enough and choosing the wrong investment mix
Make big decisions without getting burned like buying a home, getting married, and having kids
Design a plan that aims your paycheck at everything you care about and protects you from financial blow-ups
Doing this stuff is just plain financially savvy.
Knowing What to Look For is Key
The trick to finding the right financial advisor (because we are definitely not all the same) comes down to two things: research and interviews.
Unfortunately, research is where most people get stuck and give up.
If you’ve ever tried to figure out what the hell a financial advisor does — you know the pain of deciphering the difference between financial planners, advisors, coaches, and salespeople with misaligned interests, disguised as a “trusted advisor.”
But the confusion ends here.
After you grasp the following two terms — you’ll be able to find someone you trust to help you create a game plan for your financial goals.
Term #1: Fee-Only
One of the first questions to ask when you’re interviewing an advisor is:
“How do you get paid?”
If they don’t respond with a clear, concise answer — that’s a red flag.
How an advisor is paid tells you everything about their incentives. Here are the three ways financial advisors make money.
Commissions — the advisor’s paycheck relies on selling you stuff, like life insurance and investments. In some cases, the advisor is paid A LOT more for selling you one product over another, even if it’s not right for you.
Fee-only — the advisor’s paycheck is based on charging you a flat fee to help you make a financial plan. If you want your investments professionally managed, then you’ll pay an additional fee equal to a percentage of your account balance (usually less than 1% a year). Unless the fee-only advisor is the owner of the company, they’re probably paid a salary and make the same amount, regardless of what your needs are.
Fee-based (fee + commission) — this is a hybrid pay structure that’s common for advisors who charge a flat fee to help you make a plan, but they might earn a commission if you decide to buy life insurance, too.
If you had to choose just one, look for a Fee-only financial advisor.
Their paycheck is most aligned with the incentive of giving you the best advice possible, and not selling you stuff you don’t need, like a complicated life insurance policy or investment funds that put the biggest commission possible in the advisor’s pocket.
I’m not here to shit on advisors who sell life insurance for a living. Life insurance (in the right circumstances) is an important part of every financial plan.
It’s advisors who peddle products that aren’t right for the client (and screw them over down the road) that you gotta watch out for.
Term #2: Fiduciary
Aside from being fun to say (fuh•doo•shee•eh•ree) — this is the most important part of your research.
“Are you a fiduciary?”
A fiduciary financial advisor is one who’s required by law to always do what’s in your best interest as the client.
That means no shady selling tactics or doing anything that isn’t right for your personal situation.
If you’re asking yourself the obvious question — “Shouldn’t all financial advisors be held to this standard?” — the answer is yes, they should be…
But many advisors aren’t legally or ethically required to do what’s in your best interest. A silly and archaic part of financial regulation. This is why there’s such a negative stigma around the word “financial advisor” — a few bad apples is all it takes to ruin it for the rest of us.
How do you spot a true fiduciary financial expert?
First of all — if someone tries to sell you something or make you feel pressured to “sign up” during the very first meeting — that’s a good sign they’re not a fiduciary.
Here are common signs that you are speaking with a fiduciary:
Professional designations — if you go to the advisor’s Linkedin profile and see the letters CFP, ChFC, or AIF behind their name — that means they’re held to a fiduciary standard and strict code of conduct by the organization they received the little abbreviations from.
Where they work — most fee-only advisors adhere to the fiduciary rules voluntarily, and anyone who works for a Registered Investment Advisor (RIA) is governed by the SEC and required to act as a fiduciary. Advisors who work solely on commissions, on the other hand, are usually not held to the fiduciary standard, even if they have one of the designations above.
They tell you during the first meeting — and probably have it stamped all over their website and marketing materials to let you know they are required to do what’s in your best interest, which is key for building trust with new clients.
Where to Find a Fee-only Fiduciary Advisor
If you’re seriously considering the help of a financial expert, — please reach out. I’d love to help you find the right one.
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