How Objective Is Your Financial Advisor?

Chances are if you have a financial helping hand that person calls them self financial advisor, financial planner, wealth manager or broker. There is also a good chance that at the office, they are known as “producers”. I mean they have quota’s to make and sales goals to attain. This doesn’t make them bad people or poor advice givers, just not so sure they are objective when giving out advice. Many times I have run across people who had a brokerage account at firms like JP Morgan and it was no surprise when their portfolio was made up of JP Morgan managed mutual funds. Conflict?

You might also wonder just how qualified your financial advisor really is. Did they just make a career change into this field? I would be especially cautious if they don’t have a terrific background in this field.

Financial people are allowed to use pretty much any title they want on their business card. One title they have to earn in Certified Financial Planner (CFP®). Just like you could call yourself an accountant and hang a shingle tomorrow, you can’t call yourself a Certified Public Accountant (CPA) unless you go through the coursework, pass their test and keep current with continuing educational requirements. Financial planner versus Certified Financial Planner works the same way.  One other very important difference is that CFP’s have a “fiduciary” obligation to put their client’s interest first whereas the bar is much lower for most other financial advice givers.

Early on in my career, I worked with a large life insurance company that gave me some sales training, an office and a shared assistant in exchange for sharing in the commissions I earned. At that time, back in the early 1990’s, that was the main format for paying people in the financial industry. I started in that “producer” environment and even won a couple nice vacations when I hit my quotas.

When I went out on my own (1996) and formed my Registered Investment Advisory (Fortune Financial Group) and began charging fees as my primary source of income, my entire career changed. The fees that I earned were paid to me by my clients rather than getting a commission from the mutual fund company that I placed business with. I no longer had a sales quota to make and I could focus on giving clients the most unbiased advice possible.

I knew this was the way to do business when my father finally gave me his IRA money to invest.  He was hesitant to do so while I was a “producer” working primarily on a commission basis. The conflict of interest is real when your financial advisor is paid commission or works at a firm when he/she needs to meet certain sales goals.

YOU MAY WANT TO KNOW:

If your financial advisor has a financial plan that includes many of the same items that he/she is telling you to use?

When I started my financial advice giving career (early 1990’s), I set up many clients and me with automatic monthly investment plans.  These plans  were set up  with a company called AIM investments that has since been bought out by Invesco. Today, I have my 401k with Invesco and it’s the largest single investment account that I own.  Aim/Invesco is the mutual fund company that I set up with my clients back then and I still own it today.

For the past 20 years, my client account money that I manage is primarily at Charles Schwab and SEI Private Trust Company. I personally have 3 accounts at Schwab and my parent’s life savings is mostly held at SEI. Yes, I eat my own cooking!

I have two children in college and a third is a senior in high school. My oldest is a junior at DePaul, my middle child is a freshman at U. of Minnesota and my youngest has her eye on a four-year school next year. You don’t have to be a genius to figure out I have massive bills ahead of me since I am choosing to pay for those costs.  Thank goodness I started saving in the IL Bright Directions 529 College Savings Plan when my kids were born. As my income went up, I upped the monthly automatic savings amount. This is the same plan that I have recommended to my clients for years. See a pattern developing?

For me, I still own my first  life insurance policy I procured in the early 1990’s when I was in my twenties.  It’s from Minnesota Life, a terrific company that I bought another policy from for me and one for my wife. Thank goodness, because they are a very important part of our legacy plan.  I sold many clients about the benefits of having a plan of permanent life insurance and am proud to say that many of the people I told about what I was doing agreed that it was a good idea and made it part of their plan.

In the past few years I have filled a hole in my plan (chronic care in my old age) by purchasing a life insurance contract from Prudential that has a rider that allows me to take from the death benefit if I qualify and need money for chronic care. No surprise, I have been suggesting that my client’s use a similar to fill that hole in their plan.

There is more, but I think you get the idea.

Of course, everybody’s situation is unique and people come to me with a potpourri of financial holdings and there are many times where it makes better sense to keep what they currently have and work around it. Finessing each person’s plan is where my experience and expertise should shine.

The financial advice world is not the wild west and regulation has improved quite a bit in the past twenty years. There are plenty of good people out there giving very prudent financial advice. I would work only with a CFP® or an advisor in a fiduciary position.  I would look for a good referral and get references before hiring your planner.

Lastly, don’t confuse investment management with comprehensive planning. Chances are the planning is as important than the money management. Good financial planning can save you tax money, develop a retirement income plan, cover insurance and estate planning and more.

I hope you find the financial advice partner that gives our financial pease of mind.

My ADV Part 2 (disclosure document) is available on my website.