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What You Should Expect From Your Financial Advisor Thumbnail

What You Should Expect From Your Financial Advisor

College Planning Investing Retirement Funding Insights

 Financial advisors talk in expansive terms about what they offer. While most of them sound almost the same, the actual services vary dramatically. Here’s what you should look for and what it should reasonably cost.

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Transcript below:

Speaker 1 (00:07):

Welcome back to 30 Minute Money, the podcast that delivers action-oriented smart money ideas and little bite-sized pieces. Scott Fitzgerald from Rock Vox Recording and production here with Steve Wershing from Focused Wealth Advisors. Steve, how 

Speaker 2 (00:20):

Are you? I'm great. Nice to see you again, Scott. Thanks 

Speaker 1 (00:22):

For having me back. Oh, yes, ab, absolutely. And this is an important episode because here is is where we're gonna learn what we should expect from you, the financial advisor. 

Speaker 2 (00:33):

Exactly, exactly. 

Speaker 1 (00:34):

Work for me. What, what do you do? What have you done for me lately, Steve 

Speaker 2 (00:38):

Speaker 1 (00:39):

That's the question that you should be asking your financial advisor. And the answer varies. 

Speaker 2 (00:44):

Yeah. Well, and it's not lately, it's over the, you know, through the, the what, how, what's all the things that go into the relationship. That's all we wanna talk 

Speaker 1 (00:50):

About. I meant lately in the last 20 years. 

Speaker 2 (00:51):

Yeah, right. Exactly. 

Speaker 1 (00:53):

Speaker 2 (00:54):

But, you know, a lot of people are, are, you know, wonder if they should work with an advisor. They're wondering if they're getting what they should be getting outta their advisor. And so I thought it worth a discussion about, you know, what should you expect if you're working with an advisor, what kinds of things should you expect and, and what's, what's reasonable to get Yeah. From one of those. Um, because, you know, one of the things that I see is that, uh, you know, one of the things that is true is that clients can get wildly different levels of service. Well, you know, they can get different combinations of service. And, and so, you know, the question is what should you get? You know, what, what's reasonable to expect? And that's what I wanted to talk about today. 

Speaker 1 (01:31):

And, and I actually always wanted to know what should I be looking for? 

Speaker 2 (01:36):


Speaker 1 (01:36):

You know, what should I, how do I, how do I find the right person? Yep. I mean, well, besides, besides being able to get along with that person and a person Yeah. Like the personality. So I love working with you because you're, you're funny, you're down to earth, you know, and, and you, and you try to like heck to explain it so that I can understand, but I think, you know, you don't want to work with someone who you don't get along with, or you just doesn't, you know, you don't jive with. Yeah. So I'm sure that's gotta be important. 

Speaker 2 (02:06):

Well, and that, that is important. You know, it's important that you feel comfortable with that person, that, that they, they work in a way that, that, you know, you know, that, that you get along with 'em. Yeah. Just like you're saying, they, and it might be their sense of humor that might be how they, how they talk to you, that might be how they talk to your spouse. You know, it may be, you know, all those different. So whoever it is, even if it's the most highly qualified person in the world, if you just don't feel comfortable with 'em, or if you don't like working with them, they're not the right advisor for you. Yeah. So I, yes, we should say that up front, because that is, that is important. You know, it's important that you be comfortable with them for two reasons. One is you're gonna have to tell 'em everything about everything about your money, everything about your finances, and that people would rather talk about death, and they'd rather talk about sex than talk about their finances, . 

Speaker 2 (02:53):

So, I mean, face it, we'd all rather talk about sex than finances , but, um, you know, but, but you're gonna need to, you know, you're gonna need to be able to share all of the details of your financial life, and that's really private stuff. So you need to be comfortable with them. And there are gonna be times when things are tough, you know, when you have to make a difficult decision, or if markets are really bad or those kinds of things. You need to be comfortable with that person because you're gonna need to be able to stick with 'em. Yeah. You don't wanna be bailing on somebody just because you're just tired of dealing with 'em and the market's down. That's just not a good time to deal. It's 

Speaker 1 (03:25):

A long, it's a long term relationship, you know, preferably. 

Speaker 2 (03:28):

Yeah. Um, but beyond that, there are a whole bunch of things that you should reasonably expect in terms of who they are and what they do. And that's really what I wanted to talk about today. Part of the, you know, part of the problem is, is a problem of our own making. That our, our industry and, and it's a lot of people in our business will deliberately, you know, confuse things and obfuscate things because, you know, they, they want to sound competitive. They wanna sound like more than they are. And so one of the challenges that we have is the whole, the just the term financial advisor is not, there's, there's not one consistent understood definition of what that is. And so, 

Speaker 1 (04:09):

No, it's pretty vague. 

Speaker 2 (04:10):

I mean, it's, yeah, you can go to a lot of different people and you can get different mixes of services and wildly different, you know, depths of service and they're all still called the same thing mm-hmm. . And so that can be, that can be a challenge. That was really highlighted to me. One of the things that I do when I'm not working with clients is I work with other financial advisors, and I run all over the country doing client advisory boards for those advisors. And that what that means is bringing together some of their top clients to, to understand better what they most want from that advisor, what they most value about their services and that kind of stuff. And I remember one in particular where we talked about, well, what would the ideal financial advisor look like to you? What would they, how would they act? 

Speaker 2 (04:48):

And what would they be doing? What kinds of services would they be offering? And we spent 15 or 20 minutes listing out on a paper all these different things that, that would characterize that advisor, the kinds of services and, you know, their approach and how they treated clients and how they conducted themselves and that kind of stuff. And so we got through, it was a good list, you know, it was nice thorough list mm-hmm. . And then, you know, we said, so how does this advisor sort of stack up against that? And everybody on the board went, well, don't, aren't they all like this ? And when the answer is no, but how's the public supposed to know that? Right. Yeah. And so that's, that's really what I wanted to talk about today. So one of the things that you'll hear kicked around a lot is the term fiduciary. And 

Speaker 1 (05:32):

That's, that's one of my favorite words. That, and gubernatorial, I like, I like gubernatorial as well. 

Speaker 2 (05:38):

And if we can have a gubernatorial fiduciary, that would be, even that would be bonus points right there, . Exactly. 

Speaker 1 (05:46):

So fiduciary. 

Speaker 2 (05:47):

Yeah. So fiduciary and, and, and, and fiduciary can be confusing because it's a, you know, it's a fairly on, on some level, it's a fairly complex legal theory. Um, and you'll hear some people who, you know, will say, well, I've chosen to, to be a registered investment advisor because I subscribe, I voluntarily subscribe to the fiduciary standard. And that means I always put your interests first. I always put your interests before mine. That's, that's the, that's what a fiduciary is. It's not, it's not that easy, right? It because, um, at least under the law, people who work for a commission, um, you know, a life insurance agent or a stockbroker, those kinds of things, they're, they're not expect, they're, they're not required to be fiduciaries, but you still want them to take a fiduciary approach to things. And there are good reasons to work with somebody who's got a license to do stuff and may not work on the fiduciary fee side. 

Speaker 2 (06:42):

So I have both as an example, and a lot of us do, I think that's the biggest segment of the financial advisor space is people who are hybrids. They are both a, an investment advisor, and they're also a registered representative. Um, and the reason I do that is because that way, whatever my clients need, I can get for 'em. Because if there's stuff on the, like in insurance, for example, if a client needs, on the rare occasion, a client might need annuity or something like that, the stuff that's available on, in the fee space in New York State is practically non-existent. So if you want all the good stuff you go on the license side. Yeah. Um, but so how they get paid is relevant, but it's not the only thing. And there's a lot more beyond that that we want to, that we really want to talk about. 

Speaker 2 (07:30):

Um, but if you want somebody who is gonna act like a fiduciary, if they're gonna be held to that standard, then in their title can be advisor. But when you see business cards, there are a lot of other terms in there that are not advisor. So if it says advisor, there's a pretty good chance they're held to a fiduciary standard. If it says registered representative, financial professional, some other version of that, then they're not necessarily held to that standard. Um, if they are a certified financial planner, then the certified financial planner board of standards holds all CFPs to a fiduciary standard. So regardless of how they get paid, all CFPs have to act in a fiduciary manner when handling their clients. So that's one good thing, you know, and, and if you want financial planning, that's kind of the gold standard, is the cfp. So you want somebody, if you're gonna do financial planning, you want somebody to the person you're working with to be a certified financial planner. 

Speaker 2 (08:30):

And that sort of brings me to the, to the next thing that we want to talk about, which is you really deserve to have comprehensive advice. Um, if you're, if you go to somebody and really all they talk about is investments, that's really just a small part of your financial life. And frankly, it's one of the easier parts. You know, really good quality investment management is kind of dull. It's kind, kind of, you know, there's not, there's, there's a lot to it, but it, it's, it's, it's not, it shouldn't be that sex or exciting. It should be consistent  managed according to principles, you know, in a consistent way over time. Yeah. And, and you know, like, like in my practice, like a lot of financial planners practices, you know, it's, it's, it's, it's, it's a small part of the work. It's, um, it's important, it's critically important, but when we get into an engagement, it's only one little piece of the financial plan. 

Speaker 2 (09:26):

And so if all you are being talked about, if, if you're, if you're working with a person who only talks about investments, you can do better. You can get, you can get a lot more. You want something that's more comprehensive, even in the investment realm. You know, some people say, well, I'm comprehensive because I talk about not just the accounts that are here, but all of your accounts, even the ones that I don't manage. So that's important. That's a good first step. So when, when someone is putting a portfolio together for you, um, they're, they're gonna put the, what they manage together for you in a certain way. But it really should also take into account what you've got in your 401k and what you've got in other benefits plans and what you may have in the bank. You know, it, it should include all of those. Your investment plan should cover all of the investments you have, not just the stuff that that person is managing, because you don't want them to duplicate something or leave something out because they're making an assumption about what Mount may be elsewhere. Does that make sense? Yeah. 

Speaker 1 (10:23):

You know, I, I always used to have this, this vision of the financial planner as almost like a day trader kind of person. Like, they're constantly, oh, this is up and this is down, and you've gotta move this. And, you know, and that's, that's not really how it works, 

Speaker 2 (10:38):

Isn't it? That's a broker, 

Speaker 1 (10:39):

That's a broker. 

Speaker 2 (10:40):

. Yeah. That's a broker. Financial advisors don't do that kind of thing. Um, you know, day trading, that's not, that's not financial advice. You know, it's not to say that traders 

Speaker 1 (10:50):


Speaker 2 (10:51):

. Well, it's not to say that traders don't, don't do good stuff, but it's not financial advice and it's not, certainly not financial planning. Right. Financial planning has to do with a whole lot more than that. But let's talk about those outside accounts for a minute. So if you work at a university, for example, like, you know, your wife mm-hmm.  works at the university, and one, the, the, the retirement plan that they have at the university is from T I a a cref. Right. Which is the, the big institution that handles most university and a lot of school district ones. And t I ara, one of the things that you can get in T i a Kraft is their, what they call their traditional account, which is a guaranteed annuity, and it's really well run and it almost always pays a competitive interest rate. So if there's a portion of your portfolio that sh that, that would, would, that should be in guaranteed investments, that, and you work at a university that t i a account is a really good, um, choice for that. And so if you're working with somebody on your retirement investments, they should be thinking about what do you have in T I T I A A and what role should that play in the overall portfolio? Because it's unlikely that they could find something that was that secure, that would pay that level of interest outside of t i a. Does that make sense? 

Speaker 1 (12:05):

Mostly. Um, so when you're talking, and I may be getting off course here, but the, her, what was it, a 4 0 3 [inaudible] Is that, that's what mm-hmm. . Yep. Um, that's, that's all we have. So when you're talking about other accounts, what do you mean? 

Speaker 2 (12:22):

Well, it could be, it could be IRAs, it could be like you own a small business, right? So if you had a retirement plan for your business, you might work with a financial advisor to manage that. Um, PE some people have taxable accounts. They have regular investment accounts. Okay. Um, you know, so there, there's, you know, there's the retirement plan that you have at work. But let, let's say that, you know, you've, now you work at the U of R, but for years you worked someplace else. Well, there's, there's a pretty good chance you've got an IRA rollover with the proceeds from that last retirement plan where you used to work, and you might give that to a financial advisor to manage. So they're, you know, people who've been in, in a career for a long time will typically have a bunch of different accounts that came from different sources and serve different purposes. 

Speaker 2 (13:03):

I see. And some of that may be managed by the advisor, and some of it, you know, some of it's still gonna be at the employer or someplace like that, and the person you're working with should take those into consideration when they're developing the overall investment plan. But let's talk more broadly than that in, you know, investment management, I'm gonna, I'm gonna be, I'm, you know, I'm, I'm gonna be controversial about this, but from my perspective, investment management is probably worth a quarter to a third of a percent per year, um, in value. So of, but you know, the standard in, you know, the most common number in the industry is that people charge 1% to manage portfolios. Well, you should, you, you, you, you should be getting a lot more different services and advice in that relationship than just investment management if you're paying 1%. 

Speaker 2 (13:52):

And as a cfp, you know, I always go back to the financial plan. So there's a lot more about your financial plan than your investments. A financial plan will get into things like cash flow management and risk management and tax management, and, you know, estate planning and all of those kinds of things. You know, you, you deserve to have comprehensive advice. Um, and if you know, if, if, if somebody can earn you a little bit more on a portfolio, well good on you, right. And good on them. But if, if somebody goes to a financial advisor and they can figure out how to save 'em a significant amount in tax, or they can help you understand your cash flow better, and that helps you make better financial decisions. Yeah. So you have more money to invest. That's where the real value is. Yeah. It's not in the investment management, investment management is pretty straightforward a lot of the time. 

Speaker 1 (14:45):

Yeah, I see what you mean. It's a much bigger picture. 

Speaker 2 (14:46):

Exactly. Yeah. Exactly. And that's the biggest point that I wanna make because if somebody says, I provide comprehensive advice, you better be getting a written financial plan. You should be getting a written tax plan. You know, you should have you, they should have a conversation with you about all the various risks that you face. Not just the portfolio risks, but you know, health risks and liability risks and, you know, they, they might review your home, your car insurance and your homeowners. All of that stuff is all part of a financial, financial plan when you get closer to retirement. Now, of course, that's the area that I work in, um, as a specialty, when you get close to retirement, you should also have a written income plan. Like, here's where we're gonna get the income from, you know, these different accounts, these different kinds of vehicles, and, you know, it should integrate social security and any pension you may get. 

Speaker 2 (15:36):

And you know, there should be an overall strategy, a written strategy for where you're gonna get that income from so that you can be confident that when it all comes together, you're gonna have enough to last through your retirement and you're know where it's gonna come from. Both so that it lasts and also so that it comes to you in a tax efficient way. And so those are some of the big things that, that people, a lot of people may not be getting, um, but they really deserve to be getting if they're paying, you know, a fair amount to work with the financial advisor. Hmm. 

Speaker 1 (16:07):

Is there a question that you would recommend that people ask, like a very important question to, to sort of discern or, you know, that would, that would make the, the person that they're talking to sort of stick out as like a red flag or 

Speaker 2 (16:23):

Oh, yeah. . Oh, there's, there's a great question you can ask and it gets to the next part of the conversation. And that question is how do you get paid? Ah, 

Speaker 2 (16:31):

Now for most of us, it's no big deal. We just tell 'em, right? Yeah. Um, because it's mostly fees, right? You know, so I, I tell you what the fee is, but if, if you ever, you, you should always, they, I mean, they should tell you without prompting, but if they don't, you should say, how do you get paid? If there is any hemming and hawing, if there's any, if, if there's, if it's not crystal clear really quickly, don't work with that person. I'll just say that, just don't work with somebody who's not telling you how they get paid, because above everything else, you deserve to know how you're paying for things. And I, I'm hoping that this is no longer the case in the industry anywhere, but, you know, a long time ago when I started, there were, there were people who would say, oh, you don't pay for this. 

Speaker 2 (17:13):

The company I work for pays this. That doesn't make any sense. , right? Where does the company he works for get the money from? Well, from you as the client, right? So, you know, there, there are basically two answers to that, right? Commissions and fees. That's, that's how you can get paid. That's it. That's the whole story right there. Now, those fees can be structured a lot of different ways. They could be getting paid for a flat fee for a plan they could be getting. The most common one is that they get paid a portfolio fee for assets under management. I said before, that's, you know, in, in a lot of cases, like in ours says 1%, it could be more, could be less, but it's easy to tell you, you right? It's like I just say 1% of what I manage. Well, that's not hard, right? 

Speaker 2 (17:52):

Yeah. So it shouldn't be complicated. And they should tell you right away if they make, you know, if they, if they, if they, if they try to be at all sketchy about that, do not work with that person. You know, there's just, they're you, because you have to wonder what else they're not telling you. Yeah. Right. So, um, and, and there's nothing wrong with working for a commission. You just wanna make sure that you understand what it is and, and, and that it's reasonable. Um, in some cases, you know, a commission makes sense. Like, like, like I said, in the insurance business, I mean, you know, people need life insurance, people need disability insurance. If you get closer to retirement, it's worth looking at long-term care insurance. It, it's a lot more difficult to qualify for and it's a lot more expensive. But for a lot of people, it still make sense. All of that stuff is sold for a commission, all of it 

Speaker 1 (18:42):

For a long time. Uh, probably in my twenties and into my thirties, I would, I would say every once in a while, you know, I really should go see a financial planner. I really want to, you know, learn more about this and, and which clearly I didn't do . Um, but I would have a friend that would always say, oh, don't go to a financial planner. All they're gonna try to do is sell you life insurance, . Right? Right. That's, that's what, that's what it is. Boil down to that one thing. And 

Speaker 2 (19:07):

You've gotta be careful about that because again, everybody wants to call themselves a financial advisor. Um, so you, and so here's a second question that you can ask, right? If you go to somebody and they say, yeah, we do financial planning, what you wanna say, what you want to ask them is, can I see what a plan looks like? They should be able to show you. Yeah. If they don't, well there's a pretty good chance they're not actually doing financial planning. Yeah. 

Speaker 1 (19:31):

I mean, that, that makes perfect sense. Yeah. Show me, gimme an example. 

Speaker 2 (19:34):

Exactly. Exactly. And in fact, you know, the, the CFP board of standards, you know, has some requirements around that. You're supposed to be able to show work product, so they should be able to show you a sample plan. 

Speaker 1 (19:45):

And is there, you said the, the, the, there's a standards, what did you just say? The cfp, 

Speaker 2 (19:52):

Cfp Board of Standards. 

Speaker 1 (19:53):

The board of Standards. So would you recommend that when people are out looking for a financial advisor that they check into, uh, certifications and licenses and things of that nature? 

Speaker 2 (20:06):

Uh, it, yeah, and it, and it can be confusing cuz there's a lot of 'em. Right? Right. So I, I, I, I'll, I'll just touch on a couple of them, but there, there are a ton of them. Some of them have some merit and some are kind of a little questionable. But like I said, the gold standard in financial planning is the certified financial planner. If they're doing a financial plan for you, my feeling and the feeling of the board is they should be a certified financial planner. They could be a cfa, they could be a chartered financial analyst, that's an investment manager. It's a very difficult designation to achieve. It takes a lot of study and some very difficult tests. They're investment managers. So if, if you're gonna be having somebody manage a big portfolio for you is a CFA is a, is a, is a, is a big deal, uh, to have. 

Speaker 2 (20:52):

And then the other one, of course is the cpa. So if you're gonna deal with somebody to do, uh, especially complicated tax matters, um, cert, uh, certified public accountant is the, uh, is the kind of person you wanna go to. There are a lot of other ones, but those are the big three for the different aspects of the, of the business, right? Um, so how do you get paid and then, um, how do I get charged? They can be a little bit different. Um, so you wanna make sure that whenever you get involved in something that, especially in investment, that you understand what all the charges are and where they are. And I say that first because you deserve to know what you're paying, but also because in an investment portfolio, invest, uh, ch expenses can put a real drag on the portfolio. So you wanna make sure you understand all of the expenses. 

Speaker 2 (21:42):

So what do you get paid as the advisor? Um, is there a fee that the, uh, money management company you're working with charges? And, um, and what are the internal charges of the investments you're recommending? So if you're going to a financial advisor who uses a money management platform invested in mutual funds, you've got at least three different levels of expense. And so you deserve to know what, what all of those are. Um, and if you compare financial advisors, you can compare total costs one to the next. And that's one thing that they should be able to explain to you pretty, pretty quickly. So if you're in mutual funds, mutual funds have an expense ratio. If you're in an annuity, um, you know, um, if it's a fixed annuity, um, the expenses are incorporated into the interest rate. But if you're in a variable annuity, which is one that has sort of mutual funds in it, there's a cost for the contract and there's a cost for the investments that are inside the annuity. 

Speaker 2 (22:42):

And then a big, a big deal these days is all the different kinds of riders they can put on that that provides you like a guaranteed income or something like that. Those, those have an, an additional expense on them and they can be pretty high. So you want to really be, you want to be careful about that. That's not to say that they're not good. I think of, I think of annuities like that as a precision tool that in the right circumstance they can do stuff that other things can't do, but you want to go into it with your eyes open because when you pile all those expenses up together, they can get pretty high. And so you want to be sensitive to that because it can put a real drag on the portfolio. Um, and I, and I would, again, I will just come back to as a way of wrapping this up, I would come back to, if anybody ever says to you, you don't pay anything for this, you should immediately question that. 

Speaker 2 (23:32):

Like, runaway , not necessarily runaway. Because if you're buying, for example, a fixed annuity, you could make a case that you're not paying anything for it. But I've had arguments with wholesalers that say, Hey, the girl, the best part of of this is you don't pay anything for it. I'm like, that's not entirely true. Now, it might not be an explicit expense that passes through to the, to the client, but whenever anybody says to me, you don't pay anything for this, I put my hand on my wallet because , you know, everybody's making money here somehow. Right? Right. And so you shouldn't necessarily immediately run in the other direction, but you should drill into that a little bit. Tell me more about that. How am I not, how is this company staying in business? How are you staying in business? If I'm not paying for anything that's, that's worth drilling into. 

Speaker 1 (24:18):

Absolutely. So what would you say are your, is your 30 minute action list, then 

Speaker 2 (24:23):

30 minute action list is if you are working with an advisor, list the different things that that advisor does for you. Um, what kinds of analyses, what kind of a plan, what kinds of services do you get? And just make sure that whatever you're paying them seems reasonable when compared to that list of different things. And if the list is really short and you're paying a fair amount, you may wanna take a look around cuz you might be able to do better. 

Speaker 3 (24:47):

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Speaker 1 (26:12):

And also make sure that, uh, your, your financial planner isn't walking around with a golden walking stick. , the big diamond off the top. 

Speaker 2 (26:21):

 getting out of his Ferrari. Yes, exactly. . 

Speaker 1 (26:24):

Well that was, that's another, uh, another fascinating episode of 30 Minute Money. Of course. Check it outat 30Minute.money. And you can find Steve Wershing at focusedwealthadvisors.com and meat fitz@rocvox.com here in Bushnell's Basin. It's an all, all, uh, purpose-built podcast studio for your podcasting needs. We'll catch you next time on 30 Minute Money. 

Speaker 4 (26:47):