Long-term financial planning is essential, but it isn’t always easy. That’s where a financial advisor comes in. But there are lots of advisors out there—how can you pick the experts?
Jack Waymire, the founder of Paladin Registry and author of 5 Steps for Selecting the Best Financial Advisor, is here to help.
Paladin Registry is a free directory of financial planners and registered investment advisors (RIAs). The registry has the highest standards for its advisors, and it works with your requirements to find the perfect match.
Waymire spoke to Money Under 30 about what to look for in an advisor, what to avoid at all costs, and why it’s never too early to start planning for the future.
The key to a good advisor
The most common myth Waymire hears about financial advisors is that they’re all the same. In fact, he says, “there’s two distinct categories. Salesmen and advisors.” Over half the professionals who claim to be professional advisors are actually salesmen.
How can you tell if you’re talking to a salesman? One key question will clear it up: Ask how the professional is compensated for their advice.
Salesmen, such as stockbrokers and insurance agents, earn commissions. They may present themselves as financial advisors, says Waymire, since “a lot of people don’t want salesmen handling their money.” But they’re unlikely to look out for your best interests.
Genuine financial advisors are compensated with fees. “Real financial advisors are all fiduciaries. They’re held to the highest ethical standard in the industry, which means they have to do what’s best for their clients,” Waymire adds.
Waymire says millennials often invest with the first person who approaches them, not realizing they have options. In fact, real financial advisors rarely initiate contact with clients. Salesmen, on the other hand, will reach out through cold calling and other tactics. “If [millennials] only talk to people who initiate contact with them, they’re likely to hire a salesman,” warns Waymire.
He also counsels millennials to “watch out for advisors connected to brand name firms” like Fidelity, Morgan Stanley, or Merrill Lynch. “Don’t assume big is better.” Large firms can spend more on advertising and marketing, but their advisors don’t give better advice.
Instead, Waymire recommends hiring an independent advisor. The ideal advisor can demonstrate knowledge, has a clean compliance record, and is a fiduciary who’s paid with a fee. Paladin focuses on the independent experts.
Planning and investment
When should you think about getting an advisor? Right away, Waymire says. “Think about a financial advisor who provides planning. Even if [you] don’t have a lot of money, [you] need a financial plan.” Planning includes budgeting for factors like retirement and health insurance, and saving as much as possible for the future.
Waymire explains the two key components to financial advising are planning and investment. Most advisors do both.
While young professionals may not have enough assets to think about investing, they should get started with the planning side—the earlier the better. A good advisor will make accumulating assets part of the overall plan. They’ll also determine your savings rate and get you on track for retirement. “Plan your retirement as soon as possible,” Waymire recommends. “Planning should start as soon as you have your first real job.” Investing, the second component of advising, is how you’ll implement the plan you already have in place.
Many of the best advisors, however, have minimum asset requirements. For investors who have smaller amounts—under $25,000—Waymire mentions the trend of the “robo” advisor, a computer program which will accept any sum. The “robo” can be a temporary solution for a small asset amount. But for optimal results, Waymire recommends seeking a human professional.
How to hire an advisor
The biggest mistake Waymire sees young investors make when hiring an advisor? “They don’t do their homework.” With the wealth of information on the Internet, there’s no excuse for not doing research.
Waymire’s book explains the process of “where to go, what to look for, and how that information impacts the investor.” He breaks the selection process down into five steps.
Step 1: Find an advisor
Paladin Registry, with a database of around 500 advisors, is a good place to start. Paladin has been vetting advisors for fifteen years. The site is free to use—and since Paladin doesn’t have conflicts of interest, their info is completely objective.
What’s the advantage for young investors? “[The site] educates investors about advisors without burying them in a lot of detail. It streamlines information,” Waymire explains.
The professional advisor profiles on the site show investors the essentials: Each advisor’s credentials, ethics, business practices, and services.
“Young professionals tend to hire the first person that sounds good. That’s their biggest risk,” Waymire warns. “They don’t hire the best advisor, they hire the best salesman.” A research-intensive process helps investors avoid the numerous salesmen out there.
Waymire suggests narrowing your choices down to two or three potential advisors, based on who meets your requirements.
Step 2: Research
The Internet is your best asset. Before you make contact with an advisor for an interview, research them thoroughly. Here’s what to look for, according to Waymire:
The advisor’s website.
Their compliance record.
How long they’ve been in business.
How much experience they have.
Their record on the Financial Industry Regulatory Authority [FINRA] website, especially any recorded complaints from other investors.
Step 3: Initiate contact
Once you’ve done your homework, you can approach a potential advisor for a conversation.
Step 4: Interview
Here’s what you want to remember:
- Take control. Waymire’s biggest tip for a successful interview is to control the process. “When you’re interviewing salesmen and they give you a sales pitch, the salesman controls the info you’re getting. They tell you what you want to hear,” he says. “Recognize if [you] don’t take control, the advisor will.” Know the questions you want answered in advance. Your job is to figure out if the potential advisor is “competent and ethical.” Ask about their college degree, certification, and compliance record, for instance. Get the same information from each advisor you interview.
- Get everything in writing. Don’t settle for verbal promises the advisor makes. “Only what they’re willing to put in writing counts,” says Waymire.
- Require full disclosure. In addition to learning how the advisor is compensated, Waymire tells investors to “require an advisor to disclose every penny that’s going to be deducted from [your] assets.”
Step 5: Pick an advisor
The right advisor can make a huge difference. The more work you put into the process, the more likely you are to reap the benefits.
Waymire encourages millennials not to underestimate the impact of a good hire: “[With] a great advisor I’ll have more financial security and achieve more of my goals. If I’m willing to commit the time to hire the best financial advisor, my financial future’s a lot brighter.”
Finding a good financial advisor can help ensure that you have a secure financial future. Paladin Registry is a free directory of financial planners and registered investment advisors (RIAs). Jack Waymire, founder of the Registry suggests that everyone find a financial advisor, but make sure you do your research beforehand.
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