Advisors, Planners, and Brokers, oh my!

Hiring a professional to help with your personal finances can be quite complicated. There are so many different types of professionals out there that finding the person or company to meet your needs can be quite confusing. This is particularly true if you are not a “high net worth” individual because you will have fewer options available and less money to pay a professional.

If you are thinking about hiring a financial professional, here are some questions to take into account:

1. What is your goal in hiring a professional? What do you wish to accomplish?

Are you concerned about spending? Debt? Retirement savings? Taxes? Investments? Different types of professionals have different specialties so you want to be sure you are looking for someone who can actually help address your personal needs. Brokers focus entirely on investing, credit counselors help to manage problematic debt, money coaches generally specialize in budgeting, financial planners or financial advisors tend to have a broader focus on investing, budgeting, tax planning, etc. Often people think that they need an “advisor” or “planner” when they actually need a coach, counselor, accountant, broker, etc.

2. How are they getting paid?

No one is working for free. This is not a criticism, people deserve to be paid for their time and expertise. The question to ask a financial provider is “how do you get paid?” Any legitimate business person should be willing to disclose this and if they are not then it should automatically raise red flags. In “fee based” financial planning, advisors are generally paid based upon a percentage of the assets they manage or based upon a set hourly rate for service. Other advisors receive a commission when you purchase investment or insurance products. There are situations such as pro bono work or services provided by non-profit organizations in which the fee is waived or paid by someone other than the client, but these are not the norm.

The method of payment may influence the financial products that you are sold. A captive insurance agent can only sell you the products carried by their company and will not be considering the products of competitors. Advisors who work on commission will likely sell you “loaded funds” (a mutual fund with a sales charge or commission). This does not mean that the product is not the best one for you, it just means your should consider the motives of the sales person.

If you buy a car, you know that the salesperson is getting a cut. If you go to the grocery store, the cashier has no vested interest in which product you buy. It is vital that individual be aware of how an individual is receiving compensation so that they can figure that into their purchase decisions.

3. What services do they provide?

If you decide that you want to work with a financial planner/advisor there are still many distinctions within this category. You should be be clear on exactly what you are paying for and the services you can expect to receive. Two professionals with the same title may provide very different services. You may even find that the same provider has different levels of service for different clients. Be clear on what you specifically will be receiving.

Some factors to consider:

• What is the expected meeting frequency? Do they have a set meeting schedule or wait until you call them?
• Will they manage your money? Some advisors manage your assets, meaning they will actually monitor and make trades in your account. Other advisors will provide investment recommendations for you to implement on your own.
• Do you need to have accounts at a certain custodian? Frequently advisor who manage assets will require that you move your accounts to be held at a certain investment company (ex: Charles Schwab, Fidelity, etc.). If you have strong feelings about where your money is held you will want to ask where they custody.
• Do they provide financial planning? Some advisors only manage investments. Others provide comprehensive financial planning. Still others may prepare abbreviated plans for their clients. Financial planning may be included in the basic service or may be available for an additional charge.
• Does the firm/advisor provide any additional services? Some wealth management firms have in-house accountants and attorneys. If so, these services be available to you and at what cost?
• What does the customer service look like? Often in a single advisor firm the service is provided by the advisor themselves. In larger firms you may work with entire team of advisors and client service providers. If working with an investment company, you may receive a general 1-800 number for all requests. Additionally, some firms have a strong online presence and employ a lot of technology, which others may stick to paper reports and telephone calls. It is important to find an advisor and firm who delivers service in the manner that works best for your.
• What type of investments do they use? Do they recommend active or passive (index) investments? Some advisors focus investments entirely upon mutual funds. Others use individual stocks and bonds, hedge-funds, real estate, insurance products, etc. Additionally, accessibility is a vital piece to consider when investing, even when investing for the long term. If you wish to withdraw your money how long would it take? Would you forfeit any amount of your principle investment or earnings?

Researching financial professionals can be quite overwhelming. I hope that the above discussion is helpful to you in this process. There is no “right answer” to the above questions. Instead it is a matter of finding the advisor that meets your specific needs and exceptions. It is also helpful to remember that this is a professional relationship, not a marriage. If you choose to work with someone and either you are not satisfied, or your needs change, you are always free to move onto another advisor who can better serve you.

Maura Madden is a registered investment adviser in the State of Washington. The Adviser may not transact business in states where it is not appropriately registered, excluded or exempted from registration. Individualized responses to persons that involve either the effecting of transaction in securities, or the rendering of personalized investment advice for compensation, will not be made without registration or exemption.