With all the turmoil in the market, are you looking for a financial advisor to help you sort all of it out? No, this is not a solicitation. In fact, as financial coaches at Financial Finesse, we often get asked if we provide financial advice directly for individuals and unfortunately, we have to turn them down.
We don’t provide any financial advice at all in the sense that we don’t make investment recommendations or manage money. Instead, we work with people through employers that hire us to provide financial education for their employees. It’s unfortunate because Financial Finesse has managed to put together the most impressive team of financial planners I’ve ever worked with. I would be happy to recommend any of them to a friend or family member in need.
So how did we find them? The answer is a rigorous series of interviews and auditions from which only the top 2% are hired. While you can’t duplicate the entire process exactly, the good news is that there are many aspects of it that can be applied to your own search for the right financial advisor:
Follow The Money
Before we even begin interviewing anyone, we make it very clear that we are not hiring commissioned salespeople. In fact, our planners have to give up any sales licenses they have when they’re hired. After all, even the best planners can be tempted to believe in something that their paycheck is dependent upon.
To avoid these types of biases, look for advisors that are compensated by charging a fee rather than collecting commissions. The latter includes “fee-based” advisors who typically both charge a fee and collect a commission. Instead, you may want a “fee-only” advisor that doesn’t accept commissions at all.
One resource is the National Association of Personal Financial Advisors or NAPFA, which is an organization of fee-only financial advisors. Most of their fees are based on a percentage of the assets they manage so they require a minimum level of assets to work with them. You can also find independent advisors that charge an hourly fee at the Garrett Planning Network, an annual retainer at the Alliance of Comprehensive Advisors, or a monthly fee at the XY Planning Network.
Know Your ABCs And CFPs
This should be a bare minimum for consideration. After all, you wouldn’t go to a doctor without an MD or a lawyer without a law degree, would you? Of course, doctors and lawyers are legally required to have certain designations in order to practice, but the bar is much lower for financial advisors. They must simply pass a test on securities law in order to sell or provide advice on investments. A separate license is required to sell insurance.
To fill the gap, a whole alphabet soup of designations has arisen that advisors can essentially purchase to add letters after their name with the hope of buying some credibility. Unfortunately, many of these designations are essentially just marketing. This has led to a lot of confusion for people looking for quality advice.
While there are many respected financial planning credentials, all of our planners are required to have the CFP® mark as it has long been the most widely recognized designation for serious financial planners. To become a CFP® certificant, a financial planner must attain a certain level of financial education, pass a ten-hour comprehensive financial planning exam, have at least three years of full-time experience, and undergo a background check. To stay in good standing, certificants must take continuing education courses and maintain high ethical standards. While no screening process is perfect, sticking to CFP® certificants can weed out a lot of people you really don’t want handling your money. Other worthy designations include the ChFC and PFS.
While three years of experience is required for the CFP® certification, Financial Finesse requires at least ten years of relevant experience. Research has shown that it takes about 10,000 hours of deliberate practice to master a skill. This experience is especially important in the financial industry, where many financial advisors enter the profession with no financial background and then are set loose among the public after little more than sales training.
For example, I started my financial career right out of college largely because I had done well selling cutlery in people’s homes. Needless to say, I’m a much better planner now than I was then. I wasn’t the only one without any real financial experience though. Most of my colleagues were in the same boat and many decided to switch careers within the first few years, forcing their clients to find a new advisor.
Ten years also usually gives financial advisors exposure to a full market cycle. That’s important because there are lessons learned at each stage of the cycle and many of those lessons are learned the hard way. You probably don’t want your advisor doing that learning with your life savings no matter how much you want to help out your nephew in his new career.
Personal Chemistry Matters Too
Once we screen resumes for credentials and experience, the candidates are subjected to a series of interviews and auditions that test their financial knowledge, their ability to provide education and guidance, and whether they’re a good cultural fit for our company. Likewise, once you’ve used the above criteria to narrow your search to a handful of prospects, you’ll want to interview at least 3 of them to see which one is most compatible with you. Are they easy to talk with? Do they seem to listen and really understand you? Do they come across as trustworthy?
Many of the answers to these questions are going to be subjective. That’s natural because different people are drawn to different types of personalities. The key is to find someone you feel comfortable enough with to seek and follow their guidance.
Trust But Verify
Before we hire anyone, we check their references and credit report. Ask your prospective advisor if they have any clients similar to you that you can call for a reference. Almost anyone can find someone to provide a good reference, so you’ll want to do your own research too. You can check advisor background check databases from FINRA, the SEC, and the CFP Board.
It may seem like a lot but choosing a financial advisor is a big decision. This can be a lifelong relationship with someone that can help you achieve some of your most important goals. Don’t you want them to be in the top 2%?