Updated: Mar 15
Have you ever made a snap judgement about someone when you hear what line of work they are in?
Don't lie...you know you have.
What do you think when I say used car salesman? I rest my case.
Now let's try it with a few other occupations. Doctor......Convenience store clerk......Judge......Insurance salesman......Stock broker......Fire fighter......Financial advisor.
We can stop there. This is the one I want to camp out on. Financial advisor. Nowadays, it seems like everyone that is in the financial services industry stakes claim to being a "financial advisor."
Maybe you have a high school buddy that called you out of the blue one day to "catch up." You come to find out that he is now a financial advisor with <Insert Insurance Company> and he wants to help you with your "financial plan."
Or maybe you have been doing your taxes with the same gal for years, she's always done a great job on your returns and has given you some general financial advice before. Does this make her your financial advisor?
Or maybe, just maybe, you have a family friend that has gotten your parents "all set up.” Your parents tell you that you need to go talk to their "financial advisor" and starting planning for the future.
Do any of these sound remotely familiar? I am going to venture to say that you have had at least one of these experiences before.
Here's the problem with each of these scenarios, it’s unlikely any of these fictional characters are actually financial advisors.
Character 1....insurance salesman.
Character 3....stock broker.
These people are not typically professional financial advisors. Two out of three are legitimately salespeople (who may be masquerading as a trusted advisor). The accountant could be an advisor...a TAX ADVISOR. CPAs do not undergo training and continuing education around retirement planning, education planning, insurance planning (life, disability, long-term care, property & casualty, and health). No, you know what they get training on? Taxes. Which is why real financial advisors enlist the help of CPAs when it comes to, wait for it…TAXES!
So who is a real financial advisor? And one step further, why does it even matter?
I’m so glad you asked…
A real financial advisor should act as a fiduciary (acting solely in your best interests), offering objective advice surrounding your financial affairs, and charging a fee to do so. Let’s take a look at each of these three characteristics a little more closely.
1. Acting as a fiduciary – This is a buzz word in the industry right now and it simply means the legal obligation to act in the best interest of the client. I actually took the time to check with Miss Merriam-Webster herself (maybe you’ve heard of her):
Fiduciary, adj – Held or founded in trust or confidence
Fiduciary, noun – One that holds a fiduciary relation or acts in fiduciary capacity
Not a whole lot of salespeople can honestly say they work in YOUR best interests. Instead, they are representing the company they work for and they are doing what salespeople do, try to make a sale!
2. Objective advice – You go to your doctor because she spent 8 years in med school/residency. You go to your lawyer because he spent 3 years in law school. You go to your accountant because she spent several years earning her CPA.
Don’t settle for less when it comes to your finances. Some of the more recognized designations in the financial industry are the CFP® (CERTIFIED FINANCIAL PLANNER™ professional) or the ChFC® (Chartered Financial Consultant). At the very least, let these certifications act as the starting point for your advisor search.
3. Fee for advice – If you want to know someone’s motivation or incentive, just ask how they get paid. Is it on a sales commission, is it on how many assets they can accumulate, is it on product type? A real financial advisor should be paid for his/her advice. Period. If you want a money manager, that’s different. If you want an insurance agent, that’s different.
Real financial advisors advise on finances. Often times, the person that is advising you can be the best person to fulfill the recommended actions, but that is a secondary offering and should be understood as such.
Too many consumers do not understand that in order to get financial advice, YOU DO NOT NEED TO INVEST OR BUY ANYTHING. Rather, you pay a fee (whether a flat amount or hourly) for the required advice. Once the advice is given and the plan is in place, you can decide where (and with whom) to implement your plan.
This is a different service. A different line of business. They are separate.
This can mean:
Purchasing a trust or a will from an attorney
investing money with a manager (and paying the associated fees), or
buying insurance products from an agent or broker.
Most of the time, the person giving you advice, can also fulfill one or more of the needs associated with your plan. But do not be fooled, you are NOT REQUIRED to invest or purchase anything from your financial advisor.
So the next time your buddy from high school, your long-time accountant, or your parents’ family friend approaches you offering advice, be sure they fit the three requirements:
Paid a fee for advice
Final Thought: If it looks like a sales pitch, smells like a sales pitch, and sounds like a sales pitch…it’s probably a sales pitch.
Any opinions are those of the author and not necessarily those of RJFS or Raymond James. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, Certified Financial Planner™ and CFP® in the U.S.