6 Tips For Choosing the “Right Fit” Financial Advisor - Replay

My name is Brian Scribonia and on this episode of the Common Sense Financial Podcast, when you visit FINRA's broker check, an advisor's complaint history is available to the public. It can help uncover complaint patterns. And I underscore patterns because unfortunately anyone can file a complaint and there's always context to a situation. But an advisor who has years of complaints may be somebody to avoid. And how long have they been in the business? According to Henrik Decree's 2022 article about advisor failure rates, it was found that 80 to 90% of advisors fail in the first three years of practice.

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There's a difference between what's real and what's true. You're listening to the Common Sense Financial Podcast. I'm your host Brian Scribonian. Thanks for tuning in and let's get into today's topic. When it comes to choosing a financial advisor, there are many factors to consider, but there are six primary attributes that you'll want to seek out when making your selection. According to a May 2022 PIR NewsWire survey, 68% of people would like to have a personalized financial plan, but they're not sure where to find a financial advisor. I mean, the remedy to this is quite simple. You have to know in advance what you're looking for before you can begin your search. As Dan Sullivan often says, your eyes will only see and your ears will only hear what you're looking for. The default option to not finding a financial advisor, or not having a good one anyway is is to lean on family and friends or the Internet to gather pieces of information. And that is the equivalent of having a cluster of sticky notes circling your monitor. In my opinion, the problem people face is having too much information and understanding how to use and apply that information as it pertains to their unique situation. The Internet and now ChatGPT have made things easier to gather information, but for technology to work, you must know what questions to ask and then understand what needs to be done once the information is obtained. Technology doesn't replace thinking, at least not yet. It simply accelerates the processing of information to any inquiry that you give it. And as far as our trusted inner circle goes, the advice they offer is great for dinner parties discussion, but has little to do with building a personalized financial plan. Stock tips, business deals, opportunistic gains. None of that translates to having a plan, nor does it necessarily even apply to your situation. Aside from gathering information, the biggest mental hurdle of financial planning is understanding that planning is not the same as investing. The easiest spoke in the wheel financial planning is investing. You just basically toss ideas about how to invest in the air and act on something, then, voila, you're invested. When you invest, whether you lose or gain, you kind of expect the result because other than hoping for a profit, you're really not sure what the result's supposed to be anyway. The nature of investing is obscure because past performance is never a promise of a future result, and of course, it should not be relied upon for making decisions. You don't look in the rearview mirror when you're driving, and you shouldn't base investment decisions on the past. Yet that's what people often do. They lean on the past when there is this absence of a philosophy helping to guide the decision. And an investment philosophy should be your guiding light, and it's typically born out of having a financial plan. When you remove investing, everything else pertaining to the financial planning process is not as loose in terms of results. For instance, tax and income planning requires precise calculations to achieve specific results, as well as legal documentation requiring accurate wording to obtain the proper protections. Investing is the part of an engine that propels a well designed financial plan forward, not the other way around. And when something is being designed, you often rely on an engineer, not proverbial sticky notes, to bring the design to life. In the world of financial planning, that engineer is a financial professional, which leads to choosing the right fit financial advisor for you. So when choosing an advisor, there are many attributes to consider, but there are six that I feel carry more weight than some of the other considerations to help move the cream to the top. First of all, it's what licenses do they hold? Although advisors may all appear to be the same, the reality is that advisors can differ greatly in what products or services they offer the public due to which licenses they hold. Now there are a variety of series exams that can grant different privileges. So even though someone holds themselves out as an advisor, it doesn't necessarily mean that they're all offering the same products or services. Now there's a lot of debate about this topic that I Discuss in my 2021 Kiplinger article, the Financial Fiduciary Standard explained the second thing that I would consider when looking for an advisor is do they have a record? You will want to check to see if the advisor has a record and I'm not just talking about performance history or a criminal background, but rather their customer complaint history. Finra, who is an independent non governmental regulatory for all security firms doing business with the public in the United States, is the self regulatory authority over the licensing and when you visit FINRA's broker check an advisor's complaint history is available to the public. It can help uncover complaint patterns and I underscore patterns because unfortunately anyone can file a complaint and there's always context to a situation. But an advisor who has years of complaints may be somebody to avoid. And how long have they been in the business? According to Henrik Decrease 2022 article about advisor failure rates, it was found that 80 to 90% of advisors fail in the first three years of practice. There are many reasons for this, but the primary reason is the steep learning curve involved with serving clients and without experience there's not much the new advisor has to offer. In my experience, it takes about five years of training alongside a veteran advisor to have a good grip on how to conduct client meetings, and even then, this typically requires them to lean on a senior advisor to review recommendations after they meet with a potential client client. A minimum of 10 years is what I would look for and prefer longer when possible. Even after 30 years of experience myself, I'm still learning and figuring things out and that will only continue. The other thing would be if they have any designations There are multiple designations financial advisors can earn the right to use, but some carry more weight than others, like a Certified Financial Planner or cfp, a Chartered Financial Consultant, chfc, a Certified Private Wealth Advisor, CPWA and Certified Financial Analysis Analyst CFA are among the top designations and there are some of the more difficult to obtain, but there are quite a few of them out there. The other thing would be do they own their own firm? In the world of finance, financial advisors can either run their own business or they can align themselves with somebody else's company or firm. There are many big name companies out there who employ or contract advisors to offer a potentially limited range of products and advice to their customers. Many financial advisors begin working with companies like these while they are learning the business and gaining experience. But what eventually happens is the more entrepreneurial advisors, they'll branch out to fulfill their own vision for serving their clients. This is where the smaller advisor firms have the opportunity to build their own teams that enable them to serve their clients within their own system. The advisor is the company owner and creates the processes and selects the services they wish to extend to their clients. They can operate independently of course, inside industry rules and regulations to custom fit their services to their clients needs. These firms come in many shapes and sizes and differentiate themselves by what they do for the clients. These differences are what the consumer should pay attention to. It is ultimately the key to finding the right advisor. Which leads me to the last point here is what do they offer? Most advisors offer investment product services in one way or the other. The difference is whether they sell investments or they manage investments. And this isn't the same thing and is a point of contention inside of the industry. As I already mentioned, investments are part of the engine that drives your financial plan. Even though a well diversified portfolio is difficult to define, the advisor should have the ability to offer private, public and fixed assets. You may also want to verify that the advisor can offer a variety of life insurance and annuity products. Regardless of your opinion of these types of products, they are necessary to manage a risk inside of a financial plan. If the advisor only focuses on investments, they are likely not offering financial planning or just gathering assets to charge a fee. Some firms offer tax preparation independent of their financial industry licenses, but ideally you want your advisor's team to offer tax planning just like investing. There's a difference when it comes to tax services. Tax preparation is preparing a report of what has happened in the past, while tax planning is about mapping a strategy into the future to help minimize liabilities. This is an important distinction and is needed when developing a well rounded financial plan. Their knowledge of estate planning is critical as well when it comes to protecting and managing an estate as they work closely with a team of attorneys. If they aren't supporting your estate planning, then they are leaving your financial plan potentially exposed to future problems. Over the last 30 years, what I've learned is that there's not an advisor type that is right just necessarily a right fit for everybody. That's why finding the right fit for you is critical to having a good experience and fulfilling your vision for your future. For instance, My firm works with two sets of people, typically entrepreneurs and their families with at least a million dollars or more to invest and who require a personalized team approach to managing the compliance complexities of their financial lives. And then the other is highly compensated, retirement focused executives with at least a million dollars or more to invest and who wish to delegate the responsibility of managing their financial life to a team of financial professionals. If that isn't you, begin asking the most successful people you know about their financial advisor. Maybe ask for an introduction, then have a conversation with them using the criteria I have outlined for you in this podcast. If that seems like too much work, try seeking an advisor online who you resonate with through their articles and podcasts and books. Then simply make a connection with them to talk. Of course, if you meet the criteria I have outlined above, you can reach out to my financial planning firm@brianscribonia.com or scriboniafinancial.com to see if you qualify to work with our team. That concludes today's podcast. I'm Brian Scribonia. Thank you for listening to the Common Sense Financial Podcast. Thanks for listening to today's show. If you liked what you heard, be sure to subscribe on YouTube and Spotify so that you can receive notifications when we release new episodes. I'm Brian Scribonia and this is the Common Sense Financial Podcast.

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