My first career was as a “financial advisor.”
I use the term “financial advisor” loosely because I was given that title after passing my Life Insurance exam while I was still in college.
At that time, I had no idea the difference between a Roth IRA or a Traditional IRA; let alone serious financial concepts. Needless to say, a financial advisor I was not!
Honestly, I deserved the title financial advisor just as much as the barista at Starbucks who sold me the Wall Street Journal.
Anyways, from 2001 until 2011 I worked in the banking industry as a financial advisor. During that time, I passed my Series 6, later my Series 7 (allows you to sell individual stocks), and my Series 65. Additionally, I managed over $20 million in assets.
The reason I started in the industry was that I wanted to help people manage their money. My time in the industry was unbelievable and a great experience.
I loved teaching people about investments, working with clients to accomplish their goals and the continuous learning.
However, in 2010 I came to the conclusion banks typically didn’t offer the absolute best solutions for their clients. Often “advisors” were incentivized for selling higher commission products rather than doing the right thing.
To this day I miss working with clients and the industry, but I wasn’t prepared to start my own firm at that time. So I walked away.
While working, I saw many “advisors” talk themselves into selling one product over another because of a higher commission. Often those products had higher fees for the client and didn’t perform nearly as well as other investments.
As a financial advisor, I saw it all! Today I want to share with you five things about financial advisors you should know (especially if you use one).
5 Things I Learned as a Financial Advisor about Financial Advisors
1). Not All Advisors are Created Equally
As discussed earlier, almost anyone can label themselves a financial advisor. There are nearly 300,000 people who have the self-proclaimed title “Financial Advisor.” (hint: they are not all really financial advisors)
Although there are a plethora of advisors, not all of them are created equally.
A great advisor will have taken the time to get the appropriate licenses and designations. These advisors have the following licenses and designations (at a minimum):
– Series 7
– Series 65
– Life Insurance License
– Certified Financial Planner (CFP)
The reason you want someone with these designations is that you know they take their job seriously. They know about the entire planning process. They have taken the time to become an expert.
You wouldn’t trust a doctor who only completed three years of medical school, would you? That’s why you shouldn’t use an advisor who only has their Series 6 or a life insurance license.
2). Commission Payouts Can Affect Recommendations
Let me ask you a question.
If you were investing $100,000, would you rather invest in a product that took $4,000 off the top, charged you 1.20% a year, and stuck you with investments from one company.
Or would you rather invest in a product with no upfront fees, charged about 1.30% a year to manage, and gave you the best of the best for investments.
If you are like most people, you probably picked option two.
Now let me ask you another question. Would you rather get paid $4,000 now and around $400 every year or $750 a year to manage that money?
That is the decision advisors must make every day. If you are an advisor, it is much easier to recommend the products that charge upfront fees. Who wouldn’t want the immediate pay day?
The problem is the products with the upfront fees typically aren’t the best for the clients.
Commissions do affect the recommendations that most advisors make. Especially advisors with fewer customers and few assets to manage.
3). There is a Big Difference Between RIAs and Broker Dealers
There are two types of advisors. They are Broker-Dealers and RIAs.
A broker-dealer just has to make suitable investment recommendations to their clients. This means if a higher commission product can fit their client’s need then they can sell it to them. It may not be the best solution for them, but it’s suitable.
A RIA (Registered Investment Advisor) is entirely different. They are a fiduciary and must legally do what is in your best interest. This means they have to put their client’s interest ahead of their own.
If you are looking to get someone to manage your money, then look for a RIA. This way you don’t have to worry about getting screwed into a high commissioned product or just products that suit your needs.
4). Most Financial Advisors are Sale’s People…the Good Ones Aren’t
When you are interviewing financial advisors, it is easy to tell who the sales people are and who are the trusted advisors.
- Don’t care about the planning process
- Try to sell you on the first meeting
- Don’t bother getting more credentials
- Switch firms often (look up an advisor at Broker Check)
- Sell products and talk about commissions
- Take the time to get to know you
- Often meet with you 2-3 times before presenting you with a plan
- Discuss all aspects of planning (i.e. Insurance, investments, retirement, trusts, etc.)
- Present a plan to you and not just a product
- Charge you a fee, not a commission
When it comes to your money, you want a trusted advisor. Make sure you take the time to interview them, and they walk you through a process.
5). Beware of Annuities
There are lots of advisors who love annuities. More often than not, they are not the right solution for the client. However, they are often the right solution for the advisor’s pocket.
Annuities are popular (especially in the banking industry) because they can pay HUGE commissions. Some annuities pay a commission of over 10%.
If an advisor invests $100,000 in an annuity for a customer, then they can get a payday of $10,000! Imagine selling two or three of them a month. It’s easy to see why an advisor would like them.
The problem with an annuity from a client’s standpoint is they are expensive, lock your money up for an extended period of time, and are complicated.
If you have someone trying to hammer you into an annuity, please get a second opinion.
All advisors aren’t bad. A good advisor is worth their weight in gold.
Before you hire a financial advisor, make sure to understand the five things I learned from being in the industry.