Guide to Interviewing a Financial Planner/Advisor
What should the process of working with an advisor be like?
Well-defined. Step-by-step with the advisor keeping you on track The advisor should hold your hand while also holding you accountable to moving through the financial planning process and making financial decisions that are in your best interest. The process should be the following steps or similar. Click through for a more detailed description of each step.
What should I look for in a great advisor and planning firm? What should I avoid?
1Look for a “fee-only” advisor. A fee-only planner never has an incentive to sell you a product for a commission, only to construct and execute an excellent financial plan and help you implement it with the appropriate tactics, strategies, and tools. Avoid advisors who charge commissions. A financial planner is NOT fee-only and DOES CHARGE COMMISSIONS if you see the following on their website, usually near the bottom: “Insurance products are offered through….” “Securities are offered through a registered broker/dealer.” These advisors have an incentive to sell you products on commission. The commissions vary between products, creating an incentive to sell the product with the highest commission rather than the product that is a perfect fit for the client’s goals.
1John William “Billy” Amberg, II is affiliated with an investment bank, Corporate Finance Securities. While Corporate Finance Securities is a broker-dealer, its lines of business are advisory on capital raising, mergers and acquisitions, and restructuring for businesses, not selling financial products like stocks, bonds, insurance, annuities, etc for a commission like other broker/dealers.
Look for an advisor that gets a full picture of your financial life, fully explores and helps you set your own goals, and sets initial goals before recommending investments. A great doctor does not make a highly important diagnosis and treatment recommendation without a thorough exam/physical. We take the same approach with your financial health.
Look for an advisor that has a simple, elegant, goals-based investing approach. Your goals determine which investments give you the best shot at success. Avoid advisors that lead with their ability to generate superior returns. Complex investing strategies benefit Wall Street, not you. In addition to being “intellectual masturbation”, this approach puts the cart (the investments) before the horse (your goals and effective planning). Besides, 95%+ of people and firms who try to beat the S&P 500 fail, and even among the 5% that do, they don’t beat the Nasdaq (technology index). Better for your advisor to focus on planning and structuring your financial life and investments to maximize your chances of accomplishing your goals.
Look for an advisor that takes the financial planning process one step at a time and acts as the “project manager” of your financial life. It is the advisor’s job to break down the sometimes daunting and complex financial planning process into easily manageable steps that work for you and your family. It is the advisor’s job to make sure that the process goes smoothly. It is your job to continue being your amazing self. The advisor should own the outcomes and never let you get off track or fall behind with the planning process. Avoid an advisor that wants you to trust his/her expertise and implement recommendations with little explanation or exploration of alternatives. An excellent financial plan requires the client to have a thorough understanding of WHY this particular set of recommendations and tactics that make up the plan is in their best interest, including going through the process of seeing what WON’T work and what WILL work. A plan that doesn’t go through multiple revisions and at least one epiphany is at best cookie cutter and at worst a poorly made plan that will likely fail and/or not resonate with the client’s real goals.
Look for an advisor that is the majority owner of his/her planning firm. You can settle for an advisor that is a senior decision maker for the firm and a substantial (30%+), but not majority shareholder of the firm, but an advisor that is the owner is strongly preferred. Incentives matter. Period. If your advisor is the owner of the business, the fees you pay go directly to growing the value of his firm, and the ONLY incentive is excellent service. He also has the ability to change the course of the firm if needed to match his clients needs. Avoid advisors that are “captive”, are not decision makers for the firm, and/or have no equity in the firm. These advisors (think Morgan Stanley, Edward Jones, UBS, JP Morgan, Merrill, even larger independent wealth management firms) are at-will employees, are provided with outdated tools, often charge commissions, and are beholden to a corporation that is incentivized to make decisions in its own best interest, which often coincides with the GENERAL best interest of clients, but often at the expense of providing highly specialized, outsized value for SPECIFIC types of clients. Avoid advisors and firms where you will be “just another client” among so many others.
Look for an advisor that has successfully run a business outside of financial services and has walked in your shoes as a business owner. The most important financial asset for a business owner is their business, so work with an advisor that has real, in the trenches experience growing, running, and exiting a business that can effectively advise you on your most valuable asset. For some reason, the financial services industry is full of advisors with no real business experience advising business owners. Do the top medical schools hire professors that have only ever STUDIED medicine and have never PRACTICED? Of course not. Your financial advisor/planner should be no different. Avoid an advisor that has not started, grown, and/or run a successful business outside of financial services. This advisor will come up short in providing advice and guidance regarding your business. At best, the advisor will not attempt to advise you on your business and help you grow the valuation, at worst, this advisor may try to advise you in a general, academic way that is not grounded in experience, which may do more harm than good.
Look for an advisor that is licensed to represent you in the most important transactions of your life and business: A capital raise, securing a loan, going public, and selling your company, to name a few. An advisor that has these licenses and is a seasoned dealmaker is an invaluable asset for a business owner, as this advisor has built a deep understanding of what investors and buyers find attractive through hundreds of intense deal negotiations across all kinds of businesses and can help you position your business for maximum valuation. Avoid an advisor that claims to help business owners plan for exit, raise capital, etc. but has little experience being responsible for the deal from start to finish (structuring the process, sourcing the investor/buyer, negotiating deal terms, closing). This advisor has been exposed to the high level workings of a deal and what it takes to close, but has not experienced the extreme level of detail and rigor required to get a deal over the finish line. The vast majority of advisors are not licensed (Series 79) to represent business owners in this capacity.
Look for a Champion, not merely an advisor. In addition to the large amount of effort an advisor puts into ensuring you meet your financial goals, an advisor should always look for ways that he can spend a small amount of effort to generate large value in the client’s life. This could be introductions to customers, mentors, centers of influence, etc. At minimum, you should feel that the value you get from the advisor is a multiple of the fee he is charging you. Avoid an advisor that is not eager to help you in all aspects of your life. You know an advisor is eager to help when he asks you if he can help in specific, non-financial planning areas like introducing you to customers, suggesting articles/books on topics that may help you improve, etc. If the advisor does not deviate from financial topics, your accounts, etc., they will be your advisor, but not your Champion.
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