Financial Professionals

About 7 minutes
Chances are you’ve heard varying opinions about whether or not it’s a good idea to work with financial professionals. Some people swear by them while others think working with one is a complete waste of money. So it can be hard to know who to listen to.
Truth be told, this is partly because there’s a wide range of financial professionals out there offering a wide range of services. Some are great and some are, well, not so great. But before you decide if working with a professional is right for you, it’s important to start off with realistic expectations of what they can offer. If you’re hoping to find someone who can share a secret formula to make you rich or knows how to “beat the market”, don’t hold your breath. That’s not going to happen, no matter what some people might advertise.
On the other hand, if you’re looking for someone who can help scope out your financial goals and create a practical plan for reaching them, then that’s totally doable. And for some people, this is well worth the money.

Know who you’re dealing with

When we’re talking about financial professionals, a lot of different terminology is thrown around, sometimes interchangeably. So it’s helpful to focus on what the person actually does in addition to the job title.
Three major categories are
1) Financial planners and advisors: help you plan out your financial needs
2) Registered Investment Advisers: manage or recommend specific investments for you
3) Broker-dealers: buy and sell investments on your behalf
As an added wrinkle, sometimes these will overlap. For example, a Registered Investment Adviser might also offer financial planning services.
To recommend or manage specific investments (#2), the person must be employed by a Registered Investment Adviser (RIA). Technically it’s the firm that is the RIA and the people working there are called registered representatives. To make trades on your behalf (#3), the person must work for a registered broker-dealer.
Registered Investment Adviser and broker-dealer are legal definitions and both groups are regulated by the government. In fact, you can even run a background check on RIAs or broker-dealers through a free government website.

What about financial advisers and planners?

The terms financial adviser and financial planner are less precise than Registered Investment Adviser and broker-dealer. They typically are used to describe people or firms who help you assess where you stand now and plan out your financial needs. And this service is not technically regulated by the government (unless they are also recommending specific investments or buying and selling securities on your behalf).
As a result, this group of professionals is somewhat self-regulating. People who work in the industry will often have third party certifications, like Certified Financial Planner (CFP), which requires specific training. However, these certification don’t imply any level of government regulation.
Financial advisory offices can range from large firms employing thousands of people to self-employed planners working from home.

Finding a fiduciary

Before deciding to work with a financial professional, one of the most important questions to answer is whether or not they are a fiduciary.
The fiduciary standard means that not only will the professional provide appropriate advice, but they will put your interests above their own when providing advice.
While this might not seem like a big deal, it can be. Certain financial products, while technically appropriate, might not be in your best interest, potentially carrying hefty fees or risks that you aren’t aware of.
It’s also important to realize that a financial professional might be a fiduciary with respect to certain services, like financial planning, but may not be with respect to selling financial products. So you’ll want to know if they are a fiduciary with respect to all the services they would be providing to you.

Avoiding major catastro-FEES

While we love to offer high quality, entertaining content for free, most professionals want to get paid money. So it’s important to understand how financial professionals are compensated. Their fees can take several basics forms;
1) Flat fee: You’ll be charged a flat fee for service and the amount can vary.
2) Assets under management: You’ll be charged a fee based on a percentage of your assets under management (how much money you have with them). The more money you have, the more you’ll pay.
3) Commission-based: The professional will be paid a commission based on selling products or services.
You should generally be pretty cautious around commission-based fees because the professional may be incentivized to sell particular products that may not be the best choice for you.
Additionally, some professionals describe their compensation as “fee-based”, which can mean part of their compensation is based on commission. Fee-only professionals, on the other hand, receive no compensation through commission.
It’s important to know exactly how the person is compensated to make sure you’re getting a fair deal. Reasonable financial advice shouldn’t cost you an arm and a leg.

Ask around and comparison shop

You can start your search by talking to family and friends to see if they have any recommendations. But don’t stop there. You’ll want to do some of your own research too.
Don’t be afraid to interview multiple people, ask difficult financial questions, and see how they respond. You’ll be looking for a qualified professional, not a new friend, so don’t hesitate to dig. Some questions to think about are:
-What is their experience? How long have they been working in the industry?
-Who is their typical customer? Are they used to dealing with your particular needs?
-Who will you be working with? The person you talk to or will you be passed on to someone else?
-What licensing and or certifications do they have?
-Are they responsive to your questions or are they evasive?
-Are they able to explain investments clearly?
We should mention that some advisers won’t even talk to you unless your net worth hits a certain threshold, say a million dollars. But not to worry, there’s someone out there for everyone.

Level of control

If you’re going to work a professional, you should think about how much control you’ll want the person to have.
Discretionary, or managed, accounts allow the professional some amount of control over your money. Full discretion would give your professional the power to buy and sell investments on your behalf and move money from one account to another. Partial discretion might limit the professional’s activities to buying and selling on your behalf.
With a non-discretionary account, you have the final say on what investments are bought and sold in your account. Your professional might make recommendations and execute trades on your behalf, but only after receiving your approval to do so.

Robo advisers

The term robo-adviser is fairly new to the world of personal finance. It refers to using computer programs to help manage your investments, typically while minimizing fees and often involving little or no human interaction, so it can be a more affordable option.
Several firms compete in the robo-adviser world, from youngish start-ups to larger, more traditional money management firms. Some robo-adviser firms also offer supplemental human advisory services for an additional fee if you’re interested in more detailed financial planning.
In general, robo-advisers can be a good place to start if you feel like you could use some more customized guidance and don’t want to pay the higher fees that human advisers usually charge. We can even help you compare different ones.

Accountants and lawyers

So far we’ve been talking about people and firms who help plan your finances and manage your investments. But there are other some other financial professionals out there too, like accountants and lawyers.
Accountants can cover a broad range of services, but often specialize in taxes and financial planning and may be helpful in filing your annual tax return. There are other types of tax professionals too, so if you want to learn more about working with one, we have you covered.
Lawyers are licensed to provide legal assistance and can offer a range of services related to finance, particularly estate planning, which we’ll cover in more detail a little later.

Work with a professional or go it alone?

There is not right or wrong answer here since it really depends on your specific needs, capabilities, and preferences. For some people, choosing to work with a professional is a great idea, and for others, deciding to manage their own finances is more satisfying and less expensive.
We aren’t here to push you one way or the other, but we want to make sure you’re making fully-informed happy and healthy financial decisions that are right for you.

Key Take-Aways

1) Professionals can help you plan your finances, not “beat the market”.

2) Find a fiduciary – he or she must put your interests first.

3) Know what fees you will be charged.

4) Shop around before choosing someone to work with.

5) Working with a professional or going it alone is a personal decision. There is no right or wrong.


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