Who to trust with your money! đ¸
Itâs critical you understand how to vet a financial professional (which sometimes necessitates air quotes) before taking their money advice.
âI donât understand if I should use a financial advisor or who to trust or how to find one. Can you explain this?!â
Quick answer
Translation Timeout: What does a financial planner do?!
A financial planner helps you get your financial house in order and can provide an objective, non-emotional, third-party opinion about how to best grow and protect your wealth.
The time to hire a financial professional is usually before big life events (marriage, having a baby, inheritance, divorce, planning to retire, etc) in order to ensure things are on track. You donât need to have $1,000,000 to work with someone, but it does make sense to have some assets or a healthy income.Â
The clean and simple way to hire a financial advisor is to work with a fee-only Certified Financial Planner (CFP). It's the gold standard of the financial planning world.Â
You need to understand exactly how someone gets paid and if the answer is anywhere in the realm of âdonât worry about that right now,â you need to RUN!Â
Detailed answer
How do you decide who to trust with your $$$. Seriously, it's important.Â
â ď¸ âFinancial advisor" is a fairly unregulated and bastardized term. Insurance salesmen sometimes go under the moniker of "financial advisor" when they're really "salesmen". And what do salesmen do? SELL YOU THINGS! Now, the lines do get blurry here because there are ethical financial advisors who can sell you products, so here's what I want you to know...
HOW DOES YOUR FINANCIAL ADVISOR GET PAID?!Â
Does your "financial advisor" (yes, quotes) work with you for free? Umm...what does grandma say about a free lunch?! There's no such thing. If a financial advisor isn't charging you directly, then the money is coming from somewhere and that somewhere is probably commissions on the products you're being sold.Â
Working with a fee-only CFP does simplify your search. The fee-only part makes the relationship straight forward. If you elect to do a fee-based CFP, just make sure you 100% understand where any commissions are being collected. You can use search tools like LetsMakeAPlan.org and XY Planning Network or Garrett Planning Network to find a CFP. (Not ads, just my recommendations)Â
You should 100% date around until you click with the right person. Some search tools let you filter based on needs, location, or specialties (which run the gamut from âstarting a businessâ to âcharitable givingâ to âgeneration or identity focusâ to âchildfreeâ to âblended familyâ to âstudent loan debtâ and beyond.Â
Not ready to commit or donât feel ready? There are planners who will do one-off plans that are akin to a financial tune-up, but most want a long-term relationship with you as a client, and that is usually the most effective way to have someone provide actionable, helpful advice. You could also take some introductory meetings and be blunt about your needs and see if anyone is the right fit with the necessary price point that works for your budget.Â
P.S. The other big word you want to know: FIDUCIARY. You want to only work with someone who is a fiduciary, meaning they do what's in your best interest. You need to directly ask "are you a fiduciary' and if they say no, you walk. CFPs are required to be fiduciaries, but it never hurts to confirm.Â
Want to learn more?Â
Pick up my books! Check out Chapter 17 "I'm Not Rich Enough to Hire a Financial Planner" in Broke Millennial and Chapter 9 "Robo-Advisor or Human Advisor: Which is Better" in Broke Millennial Takes On Investing.
(Donât forget that these books should be on the shelves at your local library!)
Great write up. Excellent advice.