With all the turmoil in the market, are you looking for a financial advisor to help you sort it all out? No, this is not a solicitation. In fact, as financial coaches at Financial Finesse, we are often asked if we provide financial advice directly to individuals and unfortunately we have to refuse it.
We do not provide financial advice in the sense that we do not make investment recommendations or manage money. Instead, we work with people through employers who hire us to provide financial education to their employees. It’s a shame 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 replicate the entire process exactly, the good news is that many aspects of it can be applied to your own search for the right financial advisor:
follow the money
Before we even start interviewing anyone, we make it very clear that we do not hire commission salespeople. In fact, our planners must relinquish any sales license they have when hired. After all, even the best planners can be tempted to believe in something on which their salary depends.
To avoid these types of biases, look for advisors who are compensated by charging fees rather than collecting commissions. The latter includes “paying” advisors who generally charge a fee and receive a commission. Instead, you might want a “paying” advisor who doesn’t accept any commission.
One resource is the National Association of Personal Financial Advisors or NAPFA, which is an organization of fee-based 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. You can also find independent advisors who charge an hourly fee to the Garrett Planning Network, an annual fee to the Alliance of Comprehensive Advisors, or a monthly fee to the XY Planning Network.
Know your ABCs and CFPs
This should be a bare minimum to consider. After all, you wouldn’t go to a doctor without an MD or a lawyer without a law degree, would you? Sure, doctors and lawyers are legally required to have certain designations to practice, but the bar is much lower for financial advisors. They just need to pass a securities law test in order to sell or provide investment advice. A separate license is required to sell insurance.
To fill the void, a whole alphabet soup of designations has emerged that advisers can essentially shop to add letters after their name in hopes 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 CFP® certified, a financial planner must achieve a certain level of financial education, pass a comprehensive ten-hour financial planning exam, have at least three years of full-time experience, and pass a background check. To stay in good standing, certificants must complete continuing education courses and maintain high ethical standards. While no selection process is perfect, sticking with CFP® certificates can weed out a lot of people whose money you really don’t want to deal with. Other valid designations include ChFC and PFS.
While three years of experience is required for CFP® certification, Financial Finesse requires at least ten years of relevant experience. Research has shown that it takes around 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 experience, then enter the public after little more than sales training.
For example, I started my financial career right out of college, largely because I had success 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 with no real financial experience. Most of my colleagues were in the same boat and many decided to change careers in the first few years, forcing their clients to find a new advisor.
Ten years also generally gives financial advisors exposure to a full market cycle. This is important because there are lessons learned at every stage of the cycle and many of those lessons are learned the hard way. You probably don’t want your advisor to do this apprenticeship with your savings, even if you want to help your nephew with his new career.
Personal chemistry matters too
After we review resumes for credentials and experience, applicants go through a series of interviews and auditions that test their financial knowledge, ability to provide education and counseling, and if they are culturally appropriate to our business. Likewise, once you’ve used the criteria above to narrow your search down to a handful of leads, you’ll want to interview at least 3 of them to see which one is most compatible with you. Are they easy to talk to? Do they seem to listen to you and really understand you? Do they come across as trustworthy?
Most of the answers to these questions will be subjective. This is natural because different people are attracted to different personality types. The key is to find someone with whom you feel comfortable enough to seek out and follow their advice.
Trust but verify
Before we hire someone, we check their references and their credit report. Ask your potential consultant if they have clients similar to you that you can call for a referral. Almost anyone can find someone to provide a good reference, so you’ll want to do your own research as well. You can check advisor background check databases with FINRA, the SEC, and the CFP Board.
It may seem like a lot, but choosing a financial advisor is a big decision. It can be a lifelong relationship with someone who can help you achieve some of your most important goals. Don’t you want them to be in the top 2%?