My adult children, aged 34, 30 and 27, have made me into a grandfather over the last two years: five grandkids all under the age of three. While on a Zoom call recently, we delved into the topic of financial planning. My children were asking me the best ways to fund future college tuitions; they wanted to learn about estate planning; and to know the best ways to save.
On the same call, my youngest daughter asked me a difficult question: “If I was no longer there to advise them on money and other financial planning topics, who would they go to for help?”
I have been a financial planner for 35 years, and I have seen the good and the bad when working with other advisors. I told all of them that there are many articles on how to select an advisor. The problem is that they are all skewed to what the author is selling.
I told my adult children that it would be easier for me to tell them who not to select as a financial advisor.
1. Based on Title
Anyone can call themselves a financial planner or wealth advisor—and many people “selling financial products,” who do no planning or advising, usually do.
When was the last time anyone called themselves a stockbroker or a life insurance agent while selling commissionable and expensive cash value life insurance and annuity products?
2. Based on the Size of the Company
Just because an advisor works with a very large national or international firm doesn’t mean that he or she has the experience to give you advice. Most of the time, they are on their own and if you don’t believe me, Google those firms to see how many lawsuits have been filed against them. A red flag is when an advisor starts by telling you the age of the firm versus the years of experience they have.
3. Lack of Work Experience
Looking back to all my years in the industry, I personally wouldn’t hire anyone with less than 10 years of experience. You need your advisor to have gone through at least one or two recessions to know they can handle an economic crisis. Many advisors start as interns and work their way up. I’ve had advisors work for me who spent years in an administrative role and go to other firms to tell people that “all those years” were spent as an advisor.
4. Based on Commissions
People will say they are ethical, but the truth is that commissions drive behavior—ask any psychologist. What’s good for them isn’t necessarily good for you. It must be good for you only. Another red flag is when you ask the advisor how they get paid, and they tell you that the company pays them and that you don’t pay them.
5. Based on Credentials
Don’t get me wrong, I have credentials. But even I know that just as there are bad medical doctors, there are bad certified financial planners or other designations. The credential is the minimum starting point.
You can manage information, but you can’t manage advisors with bad behavior. Check them out first. You can go to BrokerCheck by FINRA to do a background check on the advisor. As I have always told my kids, trust but verify.
6. Based on a Referral
Unless your friend is willing to share with you how and why they are investing their money, don’t blindly hire someone based on a referral. Just think of Bernie Madoff. The only reason his clients referred him was because of the investment returns he promised everyone. Also, no advisor would ever willingly refer to you unhappy clients.
Finally, I have noticed that sometimes clients like to refer advisors because they are nervous about the advisor, and by referring you to them, they feel like they have confirmed their decision if you hire that same advisor as well.
If one day I am no longer able to help my kids, I want them (and you, too) to know what I know about the financial planning industry and make it as transparent as possible.
Louis Barajas is a partner at MGO Private Wealth.
