Jason and Emilia discuss 10 questions you should ask before hiring a financial advisor.
Below is the full transcript:
Announcer: Welcome back America to Sound Retirement Radio, where we bring you concepts, ideas and strategies designed to help you achieve clarity, confidence and freedom as you prepare for and transition through retirement. And now here is your host, Jason Parker.
Jason: America, welcome back to another round of Sound Retirement Radio. So glad to have you tuning in this morning. It is my good fortune to have Emilia Bernal back in the studio with me. Emilia, welcome back.
Emilia: Thank you. It’s great to be here.
Jason: I’m really looking forward to this episode, Number 183.
Jason: 10 questions to ask before hiring a financial advisor.
Emilia: Yeah. Very important question.
Jason: Yeah. We want to empower our listeners so that if they’re going to be finding somebody to help them with these important money decisions that they’re asking good questions. So before do though, we like to start the morning right a couple of ways. The first one is with a verse.
I was just studying this one this morning. It comes to us from Luke 1 and it’s verse 74. “To rescue us from the hands of our enemies and to enable us to serve Him without fear.” That’s a good one. You know, fear is this … Man, it just seems like there’s so much of it in the world today and it can really be crippling.
Emilia: Yeah. People are just … There is a lot of fear, especially with all the changes that are going on and everything, so it can be really crippling for people.
Emilia: There needs to be happier people, so that’s why I’m here, to be able to joke.
Jason: Oh, good.
Emilia: So just to put a smile on your face and get rid of some of that fear.
Jason: The good news network. This is the good news network.
Emilia: Yeah. Here we go. What do you call a Sasquatch that makes pots?
Jason: I have no idea.
Emilia: A hairy potter.
Jason: I like that one. A Sasquatch is a hairy potter.
Emilia: Yeah. That’s a good one.
Jason: That is good.
Emilia: All right. So let’s get-
Jason: Especially here in Sasquatch country, you know. This is where Big Foot lives, out here in the Pacific Northwest.
Emilia: Yeah. Can you imagine walking out and seeing a Sasquatch just making pots in the middle of the forest? Yeah. All right. So we’ll go ahead and get started with our questions.
The first question on our list today Jason … So why would our listeners ask this question? Do you have experience helping people like me?
Jason: Yeah. It’s probably one of the most fundamental, is you are looking for specific advice around a specific topic. So it may be, you know, if you’ve got young kids and you’re trying to do college planning you want to know that the advisor that you’re working with is going to help you understand college planning.
I found that just like with doctors … Like for example, my mother-in-law, she had that brain surgery almost 20 … About 20 years ago. And when she had to have that brain surgery we didn’t go out looking for the best cardiologist or general practitioner. We wanted somebody that all they did all day long was brain surgery.
And, man, you can get guys all they do these days is surgery on your thumb or knees or hearts, so you just want somebody that’s really, really dialed in for whatever it is you’re looking for. Of course at our firm our specialty for the last 20,000 hours of my life, I’ve been specializing in helping people make a transition into retirement, doing retirement planning, and for people that have recently retired making sure that they’ve got a really good cash flow plan.
So you just want to ask the question do you have experience helping people like me. And, you know, I would say Emilia, not everybody that reaches out to us … We’re not a good fit for them and they’re not a good fit for us, and I think that’s good to know ahead of time.
It’s not just you want somebody that’s competent and capable, but you also … When you form a relationship with an advisor, it’s usually not just … For the most part not just a hey, you come in, you do some documents, you never see the person again. It’s a long-term relationship, so you’ve got to make sure that it’s somebody you’re going to really want work with for a long period of time. So that’s really an important question.
Emilia: Yeah. It’s a good question to start with. Yeah. Definitely decide whether or not it’s going to be a good fit to begin with.
Jason: Yeah. And just to remind our listeners, this whole episode is all about giving then 10 questions to ask as they’re trying to find somebody to help them with their financial life.
Emilia: So question number two, Jason, our listeners would ask how do you provide value to people like me?
Jason: That’s a great question, because, again, there’s a lot of different people out there that do different things. So one of the things I found is some people are just stockbrokers. Really all they do is make recommendations to buy or sell stocks or funds or ETFs.
Some people, all they do is they sell insurance. They’re trying to sell you life insurance or annuities or Medicare supplemental policies or long-term care insurance. Some people are investment advisors, and these are people that you’re paying them a fee to get access and information, and many times actual investment management from them on how to invest their money.
Then you also … There are people out there who do comprehensive planning. I am such a believer, and what I’ve found is that in the world that we live in today I get the opportunity to speak all over our community here, different venues, and I do these webinars where we have people joining us from all over the country.
When I do these speaking engagements, one of the questions I’ll often ask is how many of you have a written retirement plan, and it’s only about 20% of the people on those events that actually have one. 80% of people don’t have a written retirement plan. Many people don’t even know what a good plan should look like.
So I believe so strongly that the first thing you want to do is form a relationship with somebody that can help you create a plan, and then if you want to go out and find an investment advisor or an insurance professional or a broker to help fill in some of the gaps on investment management or protecting what you have through insurance, that’s fine, but create the plan first.
Emilia: Great. So with that … Before I go to the next question, I just wanted to remind our listeners if you’re looking to find a place to start with your retirement planning visit Sound Retirement Planning, and we have a webinar replay that Jason’s had recently going, and you can get more information and it’ll be really helpful for your next move.
Emilia: All right. So next question … We are on question number three. Jason, this is a question that most people ask, and maybe you can let us know what yours are, but what are your credentials is the next question asked.
Jason: Yeah. Credentials … There’s no guarantee that if somebody has credentials that they are trustworthy. There can be people with a lot of credentials, but they’re not necessarily giving you the best advice.
So the first thing you want to make sure is that they have the proper licensing to be able to give you advice, and that licensing means that they’re either, again, securities licensed, so they have some kind of … Maybe a Series 7 if they’re a stockbroker. If they’re an investment advisor, that they’ve passed the Series 65 exam. If they’re an insurance professional, that they’re licensed to offer insurance. So that’s kind of the bare minimum, is to make sure that they have the correct licensing.
Now having additional credentials behind your name … Really what that does is it shows a commitment to learning more about a specific area of finance. So some of those different credentials could be things like CFP. That stands for certified financial planner. Or CHFC, chartered financial consultant. Or RICP, which is retirement income certified professional. Or CRFA, certified retirement financial advisor. Or CRPC, certified retirement planning counselor. Or CFA, chartered financial analyst.
So really just depending on what it is you’re looking for … At our firm, again, everything we’ve done over the last 10 years has been retirement focused, Sound Retirement Radio, this radio show, is all about retirement. My book, Sound Retirement Planning, is all about retirement. Most of the people that we work with are either just getting ready to retire or have recently retired.
Those are the people we’re working with all the time, so the designations I’ve personally pursued are the RICP, the retirement income certified professional, and the CRFA, because everything we do is retirement focused, so we just want to be very focused on those retirement issues.
Emilia: Okay. Thanks for all that information. So always make sure that your financial provider has great credentials.
Jason: Yeah. Now, again, credentials doesn’t mean that they’re going to do a good job.
Jason: I’ve met plenty of people out there that are licensed that don’t have any credentials, but they still are excellent financial planners. They just haven’t gone and got the additional education or spent the time to get the credentials.
Some of the other credentials people might hear, CLU, which is chartered life underwriter. So, again, if you’re looking for somebody that specializes in life insurance that might be a good one. A CPA, which is a certified public accountant, so if we’re-
Emilia: That’s what most people hear of I think.
Jason: Yeah. I was just talking with a guy the other day, he was getting some advice from somebody who was not a CPA, and I’ll tell you, that advice I found can be very costly if you’re just working with somebody that’s maybe doing taxes or they’re doing taxes for free as a volunteer.
I’ve seen situations where people have come in, and as their financial advisor I’ll look at the tax return and I’ll go okay, something doesn’t look right here. Let’s have a CPA take a second look. In some cases that saved people a lot of money in taxes, because there were mistakes and errors were made.
That’s what I just saw the other day. Somebody came in … And it wasn’t really a mistake so much. It was just something wasn’t disclosed that really should have been disclosed. Had they been working with a CPA, they probably would have known about that tax liability at that time, but … JD is for, of course, people that have a law degree, so sometimes you’ll find advisors that also have a law degree.
Some of the licensing, again, is Series 3, 6, 7, 24, 51, 63, 65, 66. So there’s a lot of different licensing. Registered investment advisors are governed under the Series 65. That’s a very comprehensive, very hard exam to pass, but for people that are legal fiduciaries, which registered investment advisors are fiduciaries, that’s an important one.
Emilia: That leads right into our question number four Jason, so are you a fiduciary? You want to ask your financial advisor are you a fiduciary. I know this is a big issue that you bring up a lot of times, and there’s supposed to be a law, but-
Jason: It was headed that direction. Yeah. And the way that that was originally structured was anybody that was giving advice on people’s retirement accounts had to act as a fiduciary. Fiduciary just means you have a legal obligation to act in somebody’s best interest.
You would think that that would be kind of a no-brainer. If somebody is going to be helping you … You’ve saved a lifetime of savings and resources. You would hope that the person that you’re working with has a legal obligation to act in your best interest regarding those funds, because you don’t get … There’s no do overs when it comes to this whole thing. If you mess it up, you could be in a world of hurt, so you just want to know that whoever is working with you has a legal obligation to act in your best interest.
When I started Parker Financial, that’s how I started the firm, was as a fiduciary, as a registered investment advisor, because I think that’s the right way to serve people. I think it’s the most transparent way to serve people. I think that’s where the industry is headed. Regardless of what the laws say, I think that’s what most people are really looking for these days. Anybody that’s sophisticated or educated or listens to our show knows that that’s an important factor when choosing somebody to help you with your retirement life savings.
Emilia: Yeah. Thank you for being a fiduciary Jason. I think a lot of our clients are really proud of that too. So question number five Jason, when our clients ask how do you get paid?
Jason: Yeah. This is another area that’s … In our industry has not been incredibly transparent. And, again, most of that I think is because in the past people had been working more with commission brokers, and so those commissions weren’t super-transparent, and really in many cases they’re still not. A lot of people … I’m always surprised that they don’t know how much money that they’re paying in fees.
But asking somebody how they get paid is … I mean if I were going to go see an attorney, I would say, “Hey, what’s this going to cost me if you want to do these estate documents?” If I’m going to go see a doctor … Doctors don’t like this, because I have asked them, “What’s this going cost me?” And they … Frankly, they don’t usually know, but they tell me to meet with their staff people, but I can ask the question.
If I go into the store to buy cream for my coffee, I can look and there’s a price tag on the organic creamer and the non-organic, and I can make a decision because I’m looking at the price and I can decide which one I want to buy.
I don’t think there needs to be a big mystery. There’s really a couple of different ways people get paid as financial advisors. Number one is a fee only for creating a financial plan. So we’re a proponent of that. Many of the people that hire us, that’s really all they want. They just want somebody to help them create a plan, and they want somebody to look over their shoulder and make sure it’s being done right. So that’s one of the ways that we offer our services, is you can just pay us a flat fee and we’ll help you with a plan.
Another way that people can be paid is fee only investment advice. So usually when you’re paying for a fee only investment advisor, what that means is that they’re charging you a fee, it’s usually an annual percentage. Our fee at our firm can range from half of 1% to 2%, to give you an idea per year, depending on if we’re more strategic or tactical.
But that’s where you’re paying an ongoing investment management fee to have somebody overseeing, placing trades, rebalancing the portfolios, helping allocate between strategic and tactical, so there’s an ongoing management fee in that world.
Then you have fee based financial advisors. Fee based financial advisors are people who accept commissions on some of the products they sell, and then they also do fee only financial planning. And you know what? I find that that can actually be an okay relationship. Sometimes by combining the fee based and the fee only, you can actually help reduce a client’s overall fee structure. As long as it’s transparent, as long as the clients understand what that looks like, I think that can be okay. The key is that people should know what they’re paying for.
Then the last one is a commission only salesperson. So those are the people where you’re not paying any fee. They’re just getting paid to sell you a product, and unfortunately that’s where there’s a lot of times not as much transparency, so I would just say be cautious in those relationships.
If somebody is only getting paid to sell you something, then that’s what they’re incentivized by, that’s what they’re motivated by. You don’t know if they’re acting in your best interest or they’re just trying to sell you something because they’re trying to keep the lights on back at home, you know.
Emilia: That’s true. That leads into our question number six Jason. So the question here for our listeners is do you ever get paid to recommend certain products over others?
Jason: Yeah. And that just comes back to this understanding how people are getting paid and understanding if they’re being incentivized to sell certain products and that creates conflicts of interest. So, again, I’m not saying that there’s never a situation where you can’t work with somebody … Because in the insurance world that’s how people have always been compensated.
For example, Emilia, if somebody comes into our firm and let’s say they want Medicare supplemental insurance. Well, we’ll refer them to somebody that specializes in Medicare supplemental insurance, and then those different supplemental policies, they don’t all necessarily pay the same commission. A different company may pay a different commission. Or, for example, long-term care insurance. Maybe one company is going to pay one commission and another company is going to pay another one.
Now that doesn’t necessarily mean that the agent is conflicted. They may not even be paying attention to the commissions, but they may be, so that’s why I think it’s important if you’re going to work with somebody that’s insurance licensed that they’re an independently insurance licensed person, so that they can go out into the universe of tools to help you find the best product for you.
And again, just because people are being paid commissions doesn’t mean they’re bad people. It’s just you’ve got to have your antennas up and okay, is this really in my best interest or what are the downsides to you as the consumer? That’s what you want to know.
Emilia: That’s why it’s important to ask these questions, and its okay to ask them. Sometimes people are afraid of asking questions.
Emilia: I know sometimes you get intimidated or you’re not sure, but there’s nothing wrong with asking questions.
Jason: Yeah. We want people to feel empowered. It’s important decisions.
Emilia: Yeah. So number seven, a pretty strong question here. So Jason, should people be asking these questions? Do you have any complaints against you and what were the results?
Jason: Great question. Yeah. So there’s a couple places people can go. Now just because somebody … Again, just because somebody’s had a complaint filed against them doesn’t mean they’re a bad person. Sometimes, you know, just people remember things differently and, knock on wood, we’ve never had a complaint filed against us. But it keeps me up at night, because I know how important a reputation is in this ever interconnected world that we live in.
But there’s a couple places you can go. So if you’re trying to check on your broker, you can go to FINRA and do a … They have to disclose any complaints that have been filed. If you’re working with a registered investment advisor, the SEC website has the investment advisor public disclosure website. You can go there and do a background search.
As an investment advisor for … Our firm, for example, we have to send out a copy of our client brochure every year to all of our clients, and if we ever had a complaint filed we have to disclose that in that document.
Then if you’re working with somebody that’s just an insurance producer, an insurance agent, then you can go to the state’s insurance commissioner’s office and you can look up the agents through that system and find out if they’ve had any complaints filed against them.
Again, you know, maybe the complaint is something that’s ridiculous and it’s not even something to worry about, but maybe it’s something very serious and it’s something you do need to know about. So you just want to know if there have been any complaints if there are any disclosure items.
Emilia: Great. So moving on to question number eight for our listeners today Jason, this question is how often can we expect to meet if I hire you?
Jason: Great question. Like I was saying earlier, a relationship with a financial advisor is usually a long-term relationship and you’re looking for ongoing advice, because creating a plan is the first step, but then you want to optimize, track and test that plan over time. In fact, I would say that when you create the plan your organize it, you organize all this data, and then you are looking to optimize it and then track and test it over time.
So I found that … You know, there was a time when we would give our clients the opportunity to meet quarterly. We would even schedule those quarterly meetings. Then what ended up happening was after about a year of that they were just overwhelmed. Most people, that was too much.
So what we … I would say at a minimum is that people need to be meeting with their advisor at least once a year to be updating the plan, or any time there’s a significant change in their financial life. So if there’s significant changes every month, then it could be calling your advisor every month. But otherwise, I would say usually checking in at least once a year is adequate for most people unless they’ve had something big happen.
Emilia: That’s great. Yeah. All right. So question number nine for our listeners Jason. This question goes out … Where can I see my information? A lot of people are really concerned about this, and security and all that stuff.
Jason: Yeah. Yeah. Yes. Yes. But being able to have access to your information, being able to see the account values and how much you have in those different accounts … One of the great things about the world that we live in today is from a technology standpoint there are … A lot of us have the ability to aggregate positions, so when clients log in they can see everything in one place, but you just want to know where you are logging in.
So for example, we have a relationship through Fidelity Investments, so our clients can download the Fidelity app or log into Fidelity if they want to see investment accounts or … But you just want to know how you get to that information in the event that, you know, something happens to your advisor. Well, what’s the backup plan? How do you access that information? That’s really important.
Most of the people I would say aren’t micro-managers. They’re not interested in sitting on the beach with a laptop open, looking at what’s happening with the market on a minute-by-minute basis. But I would say you definitely want to keep a close eye on what’s going on, and if anything is of concern or doesn’t look right or feel right, then you need to be reaching out and making a telephone call and saying, “Hey, what’s going on here?”
Emilia: It’s very important. So we have one last question here Jason. It’s a great question to end with. Do you work with a team? That’s a great question, to see if they’re just doing this all alone or what kind of support you’ve got behind it.
Jason: And I’ll tell you I’ve been on both sides of this equation, me personally. When I first started Parker Financial, I was a one man show and I did everything. I did all of the paperwork. I made all the telephone calls, and there were parts of running the business that way that I really liked because it was just very simple and very easy.
But one of the things I learned over time, people would come in and they’d say, “Jason, what happens if anything happens to you? What if you walk out of here and you get hit by a bus?” So then that’s when I realized boy, the value of having a team around you is important to protect the people you serve.
But sometimes when you have a team of people, what it allows you to do is know that there’s always going to be somebody there if you have a question and there’s going to be somebody you can talk to, depending on what it is you’re trying to accomplish. So today I really believe in that team approach, at least to the way that our firm has grown and the number of people that we’re serving today.
It would be impossible for me to really do all of this on my own and go backwards, like it was 11 years ago when I started this firm. But it doesn’t mean it’s a bad thing. Again, there’s a lot of guys out there that are sole practitioners. They’ve just got their solo shop set up and they keep things very simple and they only work with a handful of clients, and that’s not a bad thing. It could be if something ever happened to that advisor.
Emilia: True. You want to have a backup.
Jason: Yeah, have a contingency plan I guess.
Emilia: Yeah. So do we have time to just recap our questions one more time for our listeners?
Jason: Yes. Let’s go through them real quick, just one through 10. Go ahead on each one and then-
Emilia: Okay. I’ll start with number one. Do you have experience helping people like me? Question number two, let’s see. Oh, I’m kind of lost here.
Jason: I’ll do it for you.
Emilia: All right. Thank you.
Jason: How do you provide value to people like me?
Emilia: Correct. And then question number three, what are your credentials? Great there. Question number four, are you a fiduciary? Question number five, how do you get paid? Question number six, do you ever get paid to recommend certain products over others?
Question number seven, do you have any complaints against you and what were the results? Question number eight, how often can we expect to meet if I hire you? Question number nine, where can I see my information? And question number 10, do you work with a team?
Jason: That’s it for this week. Thanks so much Emilia.
Announcer: Information and opinions expressed here are believed to be accurate and complete, for general information only, and should not be construed as specific tax, legal or financial advice for an individual, and does not constitute a solicitation for any securities or insurance products.
Please consult with your financial professional before taking action on anything discussed in this program. Parker Financial, its representatives, or its affiliates have no liability for investment decisions or other actions taken or made by you based on the information provided in this program. All insurance related discussions are subject to the claims paying ability of the company. Investing involves risk.
Jason Parker is the president of Parker Financial, an independent fee based wealth management firm located at 9057 Washington Avenue NW, Silverdale, Washington. For additional information, call 1-800-514-5046, or visit us online at soundretirementplanning.com.