With over 300,000 in the U.S., finding a financial advisor is easy.
On the other hand, properly evaluating an advisor AND choosing the right expert to help with your unique needs is a challenging task.
To help, I’m providing an actionable framework for evaluating financial advisors in this episode.
I’m also sharing 3 critical things everyone should consider before entering into a new advisory relationship.
It doesn’t matter if you are looking for short-term help or a long-term relationship…if you’re considering a financial advisor this year, you’ll enjoy this episode.
Need Tax + Retirement Planning Help?
We specialize in helping people aged 50+ lower taxes, invest smarter, and (safely) create a retirement paycheck.
Our Free Retirement Assessment™ will answer your BIG questions and help you properly evaluate our firm.
Click the banner below to learn more. 👇
How to Listen to Today’s Episode
- Check Out the Retirement Podcast Network (RPN)
- Get Your FREE Retirement Assessment
- 5-Part Financial Advisor Series:
- Search for a Financial Advisor:
- Check the Background of a Financial Advisor:
- Questions to Ask a Financial Advisor:
How to Evaluate (and Choose!) a Financial Advisor
Taylor Schulte: Once again, getting finances in order is at the top of most New Year's resolution lists this year.
As a result, the beginning of the year continues to be a popular time for retirement savers to consider changing financial advisors or hiring one for the first time.
With over 300,000 financial advisors in the United States, finding a financial advisor is easy.
On the other hand, properly evaluating a financial advisor, and choosing the right one for you and your family, can be a more challenging task.
Welcome to the Stay Wealthy podcast, I’m your host, Taylor Schulte, and today I’m sharing actionable steps to help you properly evaluate a financial advisor you may be considering.
More specifically, what questions to ask yourself before beginning your search, how to find the background history of an advisor (and what to look out for), what a proper evaluation process looks like in practice, and what non-obvious questions to ask them.
It doesn’t matter if you’re looking for a short-term advisor relationship to get a few pressing questions answered or if you’re in need of a full-service, long-term relationship, I’ve got you covered today.
For all the links and resources mentioned in this episode, just head over to youstaywealthy.com/209.
Roughly one year ago, I published a 5-part series on Financial Advisors. I broke down everything from the different types of advisors to why you would hire one to the fees they charge and resources for finding the right one.
If you missed the series or want to revisit one or all of the episodes, I’ll link to it in today’s show notes. And while I tried to cover as much as possible in that series, I didn’t go into great detail about how to actually evaluate financial advisors you may be considering. Not just scheduling a meeting or two, and asking them some common questions, but truly evaluating them as a professional to determine if they are the right fit for you and your family.
We’re not talking about evaluating a real estate agent who may help you with one transaction here. Hiring a financial advisor who will be guiding you through major life events with major implications is a huge decision, and I think the evaluation process should be treated as such.
Unfortunately, throughout my career, through talking to and meeting with hundreds – if not thousands – of retirement savers, I’ve heard first-hand how challenging it is for them to properly evaluate financial advisors.
And I get it. Our profession hasn’t done anyone any favors. All of us financial advisors have similar licenses and designations. There’s no standardization of our job titles. At first glance, we all appear to offer the same services. Heck, many of us use the same custodian, such as Fidelity or Schwab, to manage client investment accounts.
Outside of scheduling a phone call (or a meeting or two) and asking some of the obvious interview questions, how does one actually evaluate a financial advisor?
Knowing how challenging this can be, when I started my firm, I dedicated a meaningful amount of time to creating a step-by-step process that helps potential clients evaluate me and my team. A process to help them make an informed decision about hiring our firm.
Equally as important, a process to help us evaluate their situation and confirm that we truly have the right expertise to help. Just like a neurosurgeon wouldn’t perform heart surgery, I think it would be a disservice to offer to help someone who has challenges I’m not an expert in solving.
Our process for people evaluating our firm is called the Free Retirement Assessment process. In short, if there is a potential fit between a retirement saver's needs and our expertise and service model, we carefully guide them through this 3-step process, providing them with a complimentary analysis of their current retirement plan, investments, and taxes.
In addition to answering their big questions, we show them exactly how we would help if we were to work together. And I mean that, we actually show them, we don’t tell them.
Financial planning – and the impact of good planning – is hard to describe. It’s kind of like a personal trainer trying to explain to me with words how they would help me reach my unique, hyper-specific fitness goals. I know from personal experience that it’s much more effective if they bring me into the gym and show me.
Show me exactly how they would get me from point A to point B based on my current situation, stated goals, and prior health history. They may even offer a few complimentary training sessions so I can actually see and feel their work in action, determine if there is a philosophy and personality fit, and determine if the value of their services outweighs the cost.
We take a similar approach. Through our Free Retirement Assessment process, we show potential clients how healthy their current retirement plan is and if they’re on track. We show them the exact tax planning strategy we would pursue with them, how it works, and why benefits their situation. We show them the gaps and pitfalls in their plan and how we would address them, how we would maximize retirement income without putting the plan in jeopardy, and how we would align their investments with their retirement goals.
Our goal is to provide as much detail as possible so they can truly make an informed decision. Our goal is not to twist someone's arm and convince them to hire us. If a client hires us, my goal is that we are the last advisor they ever hire. For that reason, I want them to see exactly what we do and how we can help, and I want them to take their time making a decision so they can truly determine if we are the right firm for them.
As many of you know, we specialize in retirement and tax planning for people over age 50 who are in retirement or close to it. More specifically, we’re able to do our best work and make the biggest impact for retirement savers with a nest egg between two million and 10 million dollars.
If that sounds like you, and you’re on the hunt for a retirement and tax planning expert, just visit freeretirementassessment.com to learn more and schedule a short phone call. That’s freeretirementassessment.com. You can also visit the Stay Wealthy website and click the “Work With Me” button in the menu at the top.
And, as always, if we don’t appear to have the right expertise to help, but you need and want professional help, just shoot me a note and I’d be happy to try and help you find the right person.
So, I mentioned that spent a meaningful amount of time creating this process. It’s evolved over the years, but there are three distinct reasons it continues to be so impactful and helpful to retirement savers looking for professional help. And these reasons can be used as a guide as you think about how you want to approach evaluating a financial advisor you may be considering:
1.) It is a clearly defined step-by-step process. I.e., we don’t wing it, it’s not a case-by-case situation, there are no question marks about what the process entails, and there are no surprises or gotchas. A clearly defined process helps to set proper expectations between all parties and create a positive experience.
2.) It takes time. In fact, it takes roughly 4-6 weeks to go through our Free Assessment process from start to finish. In other words, if someone wanted to hire us tomorrow, it wouldn’t be possible. Again, we strongly believe this is an important decision, and the evaluation process should be treated as such.
3.) We show and don’t just tell. Our process isn’t a proposal. It’s not a sales pitch. It’s not a one-way conversation. It’s not a “transfer your accounts to our firm and then we will answer your questions.” We ask questions, we listen, we learn, and then we show in detail exactly how we can help. We also provide answers upfront to questions that we think everyone should be asking as well as a list of potential questions a person might consider asking us as they go through our process.
Keeping those three things in mind, let’s dig further into how you might approach your evaluation process and what you might take into consideration as you explore changing financial advisors or hiring one for the first time.
The very first step, in my opinion, is to identify and document your current challenges and pain points. What are you up against that’s leading you to consider hiring a professional? What are the big unanswered questions you have? What is keeping you up at night?
Are you riddled with student loan debt and need help creating a viable payoff plan? Are you a busy, high-earning professional who just can’t properly manage your finances anymore and fear you may be making mistakes or missing opportunities? Do you want to retire but unsure if you’re able to? Are you concerned about the looming tax bill you have in retirement due to the tsunami of RMDs that are ahead?
In addition to challenges and pain points, consider also documenting your needs and goals. These are different than challenges – they’re not necessarily keeping you up at night or causing stress also, some of them may just be “nice to have’s”, and not things that must be solved for.
For example, a “need” might be, generating more income in retirement. Or proactively managing and reducing taxes. A goal might be retiring next year or creating a plan to give more to charity or hiring a professional to do the heavy lifting so you can spend time doing the things you love.
So why are we going through this often boring task of documenting our pain points, challenges, needs, and goals?
Well, when it comes to other areas of our life like medicine or legal, it’s second nature for us to first identify what we need help with or what’s bothering us before we begin our search for an expert. If we have regular headaches, that might lead us to look for a neurologist.
If we just got married and need a living trust and will, we would likely seek out an estate attorney to help. But for some reason, and for way too long now, when it comes to our financial life and solving our unique financial challenges, many people incorrectly assume that a reputable, licensed financial advisor must be able to help with whatever financial challenge we’re up against.
They are a financial advisor after all, they must know how to render advice about a person's finances.
While most financial advisors – and especially certified financial planners – have broad knowledge of many different areas in personal finance, it would be unrealistic to expect that every advisor is equipped to help anyone and everyone with any problem or challenge or goal. Just like it would be unrealistic to expect a divorce attorney to know how to draft my estate plan.
And since most wealth management firms continue to hold themselves out as generalists who can help a wide range of individuals, it’s likely going to be up to you to properly evaluate them and determine if they TRULY have the right expertise to solve your biggest challenges and help you reach your stated goals.
And by the way, this is not a knock on generalists. Just like there’s a need for general practitioners in the medical world, there’s absolutely a need for them in the financial world. Documenting your challenges, pain points, needs and goals as a first step, before searching for potential advisors, will help you begin to uncover what sort of professional help you might need.
Next, from there, after identifying and documenting your needs, goals, and pain points, I would suggest taking some time to answer the following four questions:
1. Do you need help with financial planning and investment management? Or do you just need help with one? For example, perhaps you enjoy managing your investments or already have an investment manager you like and just need help with financial planning. That would be important to document ahead of your search and ahead of any phone calls you make.
2. Second to that, do you want to implement the recommendations that a financial advisor gives you on your own? Or do you want the advisor to do the heavy lifting and implementation for you so you can spend your time doing other things in life that you enjoy more?
3. Third, do you want a short, limited-term engagement with an advisor, or are you looking for an ongoing, long-term relationship? In other words, do you just have a few pressing questions that you need answers to? Or have you determined that establishing a long-term relationship and paying someone an ongoing fee to proactively help you year in and year out is most important?
4. Lastly, do you want to broaden your search and find the best financial advisor for your situation, even if it means working with them virtually? Or is it critical that you find someone local whom you can visit and meet with in person on a regular basis? While more and more retirement savers are comfortable working with advisors virtually, I find this to be personal preference and not something that I ever provide my opinion on, so it’s worth putting some thought into before beginning your search.
Answers to these questions, in addition to factoring in your documented needs, goals, and pain points, should help you narrow the list of 300,000 potential advisors around the country to, hopefully, something more manageable.
To help you narrow down your list, there are some great websites out there that allow you to filter for advisors using the criteria you’ve documented so far. There’s NAPFA.org, FeeOnlyNetwork.com, the CFP Board website, XYPlanning Network, and The Garrett Planning Network, to name a few. Knowing most of you are probably on a walk, or driving, or at the gym while listening right now, I’ll link to a list of these websites in today’s show notes which can again be found by going to youstaywealthy.com/209.
After conducting your search and identifying one or more advisors to evaluate, the final step to consider before reaching out and and engaging with them is to conduct a quick professional background check. To be on the safe side and eliminate confusion, I’d suggest visiting both FINRA’s broker check website as well as the SEC's Investment Advisor Disclosure site.
As shared in my 5-part series on advisors last year, some advisors wear multiple hats and are therefore licensed and registered with both entities. FINRA oversees brokers and the SEC oversees Investment Advisors. In short, brokers make money by selling financial products for a commission and Investment Advisors charge a transparent fee in return for their services.
Early on in my career, I wore multiple hats and acted as both a broker and an investment advisor, so you’ll find those 6 years of background info on me on the FINRA website, ending in 2014. And then if you jump over to the SEC website, you’ll see 16+ years of history leading up to current day.
If an advisor was never a broker and never registered with FINRA in their career, the FINRA broker check tool will still show record of them without any history and then share a link that will take you to the SEC website. So, again, if you want to cover your bases and avoid confusion (such as thinking Taylor might only have 6 years of experience after looking at FINRAs website), reviewing both sites is a best practice.
I’ll link to both of the sites in the show notes, but then what are you actually looking for when going through this exercise and reviewing a financial advisors work history through FINRA or the SEC?
Well, ultimately, it’s going to be up to you to decide what may be a red flag and what isn’t But, in short, if an advisor has ever been accused of any wrongdoing, has been involved in a lawsuit, has been ordered to pay damages to someone, etc., it will show up on one or both of these public disclosure websites. Not only will there be an explanation of what happened, but the site will also show the result of the claim and the amount of any damages the advisor was ordered to pay to the client.
An advisor with 20 years of experience who, at one time in their career, had to pay 5 or $10,000 to settle a minor client complaint due to a misunderstanding or miscommunication may not be something that concerns you. On the other hand, an advisor with multiple complaints (or one significant dispute) coupled with large settlement dollars may be a bigger red flag.
I’ve seen advisors with 20+ disputes on their record, and reading through each case will tell you pretty much everything you need to know about their judgment and character. However, when in doubt, if you do see a disclosure that concerns you, you may consider asking the advisor to share more about what you found during your evaluation process and give them the opportunity to provide their perspective.
In addition to learning about any wrongdoings throughout this background check, you may also be interested in learning about their work history, licenses they hold, and years of experience. Keep in mind, there are some phenomenal advisors with limited experience and there are some terrible advisors with 30+ years of experience.
So, again, it’s up to you to determine how to interpret the information you find and what is important to you in your search. This step in the process may further validate the advisor or advisors you plan to reach out to and evaluate, or it may help you narrow your list down even further.
Now that you’ve identified and documented your pain points, needs, and goals, answered some important questions about what you’re looking for in an advisor relationship, narrowed down your list of potential advisors who meet your criteria, and conducted a brief professional background check, it’s time to finally begin your evaluation process. And this is where it can get a little challenging, because not every advisor is going to have a clearly defined process.
While I do think a well-documented, mutual evaluation process created and offered by the advisor you are considering is a positive indicator, the lack of one isn’t necessarily a red flag. However, the lack of a process does mean that more of the burden is on you to ensure you are going through a proper evaluation and getting everything you need to make an informed decision.
It’s not uncommon for an advisor's process for potential clients to be as simple as having a short phone call or meeting, presenting a proposal of their services and fees, and then asking you to sign on the dotted line. And perhaps that’s ok. Perhaps this simple process worked for you and you were provided with everything you needed to make an informed decision.
Or, perhaps, it leaves you with unanswered questions, it leaves you wanting to see actual examples showing how they can help you, and you need more time to properly evaluate their firm, their service model, and fee structure, to determine if they are truly the right fit to help. If that’s the case, take what you learned today, coupled with other resources that are out there, and conduct a proper evaluation.
Regardless of an advisor having a clearly documented evaluation process or not, I think there are 3 things everyone should consider at this stage:
1. The first is asking important, non-obvious questions that haven’t been answered yet. Questions outside of what services they offer, how many team members they have, and what their fee structure is. I’ll provide additional non-obvious questions in the show notes to help you out here, but a few that come to mind are:
What is your specialization? What specific challenges do you have the expertise to solve? Their website might say they do retirement and tax planning, but I think listening to how they describe their specialization to you in real-time face-to-face is extremely informative.
How many clients do you serve? Depending on the complexity of your situation and the level of personal service you’re expecting, knowing how many clients they personally serve will help you determine what their capacity truly is and what kind of practice they’re running. On average, one experienced lead advisor can provide personalized, comprehensive services to about 100 clients. There are exceptions to that rule of thumb, but it’s a decent starting point.
What professional licenses do you have? As noted earlier, there is no standardization of titles in the wild world of wealth management. A disability insurance agent can call themselves a financial planner. A CFP that sells lucrative financial products for a commission could technically call themselves a Fiduciary since the CFP Board requires certificate holders to adhere to a Fiduciary standard. Knowing exactly what licenses they hold will help clear up any potential confusion and get to the bottom of exactly how they run their business.
Again, there are no shortage of important, non-obvious questions to ask, but since they are often unique to your situation and the process you may be going through, I’ll save my breath and link to some resources for you in the show notes
2. In addition to asking non-obvious questions, the second thing to consider is to ask to speak to one or two of their existing clients. While it would be rare for an advisor to introduce you to a client of theirs who will say something bad or negative about them, I think it’s still something to consider, especially if you’re on the fence about your decision.
It can help validate things you’ve learned about the advisor through your evaluation process, it can provide comfort and reassurance, and it could even prompt some additional questions you think would be important to get answered before officially moving forward.
3. Lastly, implement the 24-hour rule. When trying to improve your spending behavior, the 24-rule says to give yourself a full day, a full 24 hours, to consider whether you want to make a purchase.
For example, if, like my wife, you want to buy one of those fancy countertop nugget icemakers on Amazon, put it in your cart, and then come back 24 hours later to determine if you still want to purchase. This same rule can, and I think, should be applied when making this giant decision to hire a financial advisor.
Even if you’re feeling incredibly confident about the advisor you’ve evaluated, and even if the advisor gives you the opportunity to sign on the dotted line to make it official during your final meeting, I think it’s best practice to sleep on it, and give yourself at least 24 hours before making a final decision.
It’s also a good final test in your evaluation process. If you get any sort of pushback for taking your time and sleeping on your decision, or if you get any sales pitch or pressure to sign right then and there, you may consider going back to the drawing board.
I hope your 2024 is off to a great start and I hope you found today’s episode helpful as you potentially begin your search for a financial advisor. Given that everyone's situation is different and everyone has unique needs and circumstances when it comes to hiring a professional, it’s nearly impossible for me to cover everything.
If you have any unanswered questions about finding and evaluating financial advisors, if you need a recommendation or a resource, please don’t hesitate to reach out. As always, you can shoot me a note at email@example.com.
And, once again, to grab the links and resources mentioned in today's episode, just head over to youstaywealthy.com/209.
Thank you, as always, for listening and I will see you back here next week.
Episode Disclaimer: This podcast is for informational and entertainment purposes only and should not be relied upon as a basis for investment decisions. This podcast is not engaged in rendering legal, financial, or other professional services.