Episode 9: Does It Make Sense to Work with a Financial Planner?
This episode marks the beginning our discussion about whether it makes sense for you to work with a financial planner or advisor.
To start we discussed the Secret Society of Real Financial Planners (SSofRFP). The financial services industry appears really complex. It’s hard to define what it really means and what you’ll get from a particular individual. Despite the horror stories heard from family and friends, we’ve heard about people who were actually helping others as real financial planners. These people are often unknown because they don’t have big marketing budgets and they’re so busy working, they don’t spend much time talking about what they’re doing. These people belong to the SSofRFP. But how do you find these hidden people? You start by asking the people you trust.
The Compensation Issue
When Bill graduated from college in 1983, he started with Smith Barney. He discovered that one of the issues with seeking financial advice involved compensation. He was compensated by transactions and products sold, a system that is often not in the best interest of the person seeking financial advice. Bill considers the traditional compensation structure one of the flaws, if not the primary flaw in the industry. However, it’s starting to evolve to a more authentic compensation.
Why is compensation an issue? Many times as a consumer, you can’t even figure out how someone was compensated. When you look at the traditional transaction, the industry has a history of talking out of both sides of its mouth. We hear “buy and hold,” but the compensation structure encourages short-term trading. It encourages the investment advisor or broker to make lots of trades and transactions.
Finding Someone You Can Trust
You can start by asking the people you trust who they trust—-your family, your CPA, your lawyer, etc. Then, based on the list, you start interviewing people. You want to find someone who can work with for the remainder of your investing career. You want to avoid changing advisors and investment philosophies every few years. The goal is to develop a good working relationship with your advisor.
If you don’t meet account minimums, or have other reasons for not commiting to a long-term relationship, you always have the option to work with a planner on an hourly basis. The same rationale applies: you must trust the person you’re working with even if you only see them on a limited basis.
Advisor vs. Planner
When you look at the industry from the outside, it’s hard to define what the different roles mean. So what does it mean when we use the terms “financial advisor” and “financial planner?” A financial advisor looks at an individual’s investments and portfolio, while a financial planner looks at a broader range of financial issues, beyond investing, like budgeting and estate planning.
On our next show (two weeks from today, July 8), we’ll discuss the focus of advisors and planners. Does your advisor or planner focus on product promotion or on helping you work through your financial issues and questions?
Hourly Financial Service Option: Garrett Planning Network
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