Today I’m kicking off a multi-part series on Financial Advisors.
(I’m also sharing a BIG announcement with everyone!)
In Part One of this series, I’m covering three things:
- What is a financial advisor
- Why the job title is meaningless
- What financial advisors do (and don’t do)
It doesn’t matter if you manage your own finances, happily work with a financial advisor, or work with 15 advisors…
..if you want to gain a better understanding of this important (yet confusing!) profession, this series is for you.
More Than Money Book – ‘Buy One, Give One’ Campaign
As mentioned in today’s episode, 100% of the net proceeds from More Than Money are being donated back to non-profit organizations dedicated to improving financial literacy, diversity in the advisory profession, and access to financial help.
To motivate the Stay Wealthy community to support the book’s mission, I’m running a ‘buy one, give one’ campaign during the month of December.
Here’s how it works:
If you pre-purchase a copy of More Than Money for yourself, I’ll personally match your purchase and buy you a second copy to give away to someone in your life.
It could be a friend, relative, neighbor, student…whoever you think would appreciate it and benefit from it.
(Note: I don’t need or want their personal information – I’ll send YOU the second copy for you to give away out how you see fit.)
Want to participate? Here is all you have to do 👇
Step 1 – Go to www.morethanmoneybook.com and pre-order your copy.
Step 2 – Send a screenshot of your purchase to email@example.com.
Step 3 – Look out for an email from my team in January. They will grab your mailing address so we know where to ship your second copy.
BONUS – While, I can only commit to matching one book per person, if you’re feeling extra generous this holiday season and want to further support our mission, please consider pre-ordering more than one copy.
Once again, nobody is making a single dollar from this book, and 100% of the net proceeds are being donated back to non-profit organizations like the Foundation for Financial Planning.
Thank you in advance for your support!
How to Listen to Today’s Episode
- Subscribe to the Stay Wealthy Newsletter! 📬
- More Than Money: Real Life Stories of Financial Planning
- Retirement Plans and Financial Advisors: Last Week Tonight [John Oliver, HBO]
Financial Advisors (Part 1): What Are They and What Do They Do
Taylor Schulte: Hey everyone, so I have some really fun news to share that I’ve been keeping from you. As of March 23, 2023, I will officially be a published author. Pretty wild to say out loud for the first time.
For the last 18 months or so, I’ve been hard at work with friends and fellow financial advisors, Justin Castelli and Shanna Due. Together, we curated, read, and edited 27 different true stories written by practicing financial planners. The book is called More Than Money: Real Life Stories of Financial Planning and it’s officially being published by Harriman House. Yes, the same Harriman House that published Morgan Housel’s The Psychology of Money which has now sold over 2 million copies.
More Than Money is the first of its kind. It’s a collection of inspiring true stories that reveal how real clients applied financial planning to achieve tangible results that changed their lives. Not how they made a quick buck or squeezed out a few extra % points on their returns or the tactics they used to save millions of dollars for retirement.
These stories feature people from all walks of life―young and old, those in debt, and those with a lot of wealth―and a wide variety of situations, from designing a desired lifestyle to dealing with catastrophe. They show how well-thought-out, personalized, and high-touch financial planning can truly impact lives for the better.
My favorite part of this entire project is that every single contributor agreed to donate 100% of net proceeds from the book to non–profit organizations dedicated to improving financial literacy, diversity within the profession, and expanding access to pro bono financial planning. In other words, the more books we sell, the more people we can help gain a basic understanding of money and get access to financial help.
It’s pretty rare that I ask you, the Stay Wealthy community for anything, and this is one of those rare moments where I would truly love your help.
For the entire month of December, I’m running a “buy one, give one” campaign. Here’s how it works:
If you pre-purchase a copy of More Than Money for yourself, I’ll personally match your purchase and buy you a second copy to give away to someone else in your life of your choosing. Could be a friend, relative, neighbor, student…whoever you think would appreciate it and benefit from it. And I don’t want their name or address or anything – I’ll send you the second copy for you to dish out how you see fit.
Here’s all you have to do:
Go to www.morethanmoneybook.com and pre-order your copy. That URL will take you straight to the Amazon purchase page and I’ll be sure to add the link in the episode description and show notes as well.
So go to www.morethanmoneybook.com and pre-order your copy.
And then send a screenshot of your purchase to firstname.lastname@example.org.
In January, my team will reach out to collect your mailing address so we can ship you your second copy when the book comes out in March.
And while I can only commit to matching one book per person, if you’re feeling extra generous this holiday season, and want to support financial literacy in this country, please consider pre-ordering more than one copy. Again, nobody is making a single dollar from this book, and 100% of net proceeds are being donated back to non-profit organizations like the Foundation for Financial Planning.
Once again, just go to www.morethanmoneybook.com, pre-order your copy, and then send a screenshot of your purchase to email@example.com. Assuming you’re an Amazon user, this will take less than 2 minutes.
I’ll also provide the links and instructions in the show notes for today’s episode which can be found by going to youstaywealthy.com/174.
Thank you in advance for your support. Onto today’s show.
Financial advisor, financial planner, financial consultant, wealth manager, wealth advisor, investment advisor, investment manager, fiduciary advisor, registered investment advisor, registered representative…
Believe it or not, those are just SOME of the titles used by the 300,000 licensed financial advisors across the country.
And then we have fee schedules like fee-based, fee-only, commission-based, hourly, project fee, retainer fee, asset-based fee, and my favorite…no fee.
Finally, let’s not forget about those letters we put after our names to make us feel extra special…CFP, CFA, CIMA, CLU, RMA, CHFC, MBA, CMT, PFS.
When I started my career as a financial advisor at a large brokerage firm at 22 years old, I learned that several colleagues that were hired at the same time for the same role didn’t have a college degree.
You might be as surprised as I was to learn that you don’t actually need a bachelor’s degree to be a licensed, practicing financial advisor.
Unlike doctors and lawyers, there isn’t a clear career path for aspiring financial advisors. There’s no standardization of titles, no higher education requirements, and no experience requirements, and we can’t seem to stop coming up with new terminology to further confuse investors and retirement savers.
With all of that in mind, it's not entirely surprising to learn that, according to a recent survey by Market Consult, Americans trust banks, insurance companies, and credit card companies more than financial advisors.
As a financial advisor who takes this profession and my responsibility seriously, it hurts when I read survey results like these. It hurts to see how confusing we’ve made things and the trust that has been lost due to greed, the lack of standardization, and, in some cases, the lack of oversight.
If I meet a lawyer at a party, my follow-up question after learning their profession is typically, “what kind of law do you practice?”
But if I tell someone at a party that I’m a financial advisor, they’ll either run as fast as they can in the opposite direction or respond with something like: “so…what do you actually do? You do like stocks and stuff?” or something like: “I think my niece does that, I’m not exactly sure, it’s confusing..maybe you guys know each other.” Or, the very common, “I wish I had more money. If I ever win the lottery I’ll call one of you.”
To date, I don’t think I’ve had a single person ever respond with, “who do you specialize in working with?” Or, “what problems do you help your clients solve?”
While not EVERYONE needs a financial advisor, the work that REAL financial advisors do is incredibly important. I know because of comments I regularly get from the 90 families around the country that I serve. I know from the hundreds of emails I get every year from people sharing their positive experiences. And I know from my upcoming book, More Than Money, and the inspiring, often untold true stories we’ve documented.
So, through this series, I want to do my part to help clear things up and move this profession forward. I want to help people better understand what a financial advisor really is, what they do, how they make money, who needs one and who doesn’t, how to find the right one (and identify the wrong one), and the biggest pitfalls and mistakes to avoid.
It doesn’t matter if you manage your own finances and investments, work with a financial advisor, or work with 15 advisors. If you want to gain a better understanding of this wildly important profession, this episode (and this series) is for you.
To grab the links and resources for this episode, just head over to youstaywealthy.com/174.
According to the Oxford English Dictionary, a financial advisor is:
“a person who is employed to provide financial services or guidance to clients.”
By that definition, you could consider your CPA, banker, or insurance agent a financial advisor. You could even throw your mortgage broker or estate planner in the mix.
As HBO’s John Oliver put it, the term is meaningless:
John Oliver: There is something you should know about financial advisors, even their name means less than you might think. The financial industry regulatory authority warns customers to be aware that financial analyst, financial advisor, financial consultant, financial planner, investment consultant, or wealth manager are generic terms or job titles and may be used by investment professionals who may not hold any specific credential.
So financial analyst is just a fancy term that doesn't actually mean anything. Sort of like brand ambassador, or the John Oliver Effect, meaningless, completely meaningless.
Taylor Schulte: Since I don’t control the standardization of titles in this profession, and to help mitigate confusion, we are going to use a slightly more narrow definition of a financial advisor in this series. This one is from Investopedia:
“A financial advisor is a professional who provides expertise for clients' decisions around money matters, personal finances, and investments.”
We’re also going to agree that financial advisor is synonymous with financial planner. I’ll explain more about these two terms, but for now, just take note that financial advisor, financial planner, they are synonymous with each other.
So, with that more narrow definition in mind, what exactly does a financial advisor (or planner) do. Here are 9 services typically provided by financial advisors:
1. Investment management or investment advice
2. Retirement planning
3. Estate and legacy planning
4. Tax planning
5. Insurance planning (LTC, life, disability)
6. Saving for college
7. Budgeting/cash flow planning
8. Debt management
9. And in some cases, business planning like advice around buying/selling businesses, financing, and setting up business retirement plans
I’ll also add two more “nontraditional” services to this list. The first is accountability. Just like some people might need to hire a personal trainer to regularly get to the gym or a marriage therapist to maintain good communication with their spouse, many people hire financial advisors to hold them accountable to taking action. Working on improving our finances isn’t always enjoyable, and therefore a lot of people don’t do anything and just kick the can down the road.
In addition, people can be paralyzed by all of the options available to them, and in turn, don’t do anything because they’re not sure what to do. Having someone to guide you and hold you accountable to making progress can be a valuable service.
The second is “behavioral coaching.” As some might be able to attest to, there is often a lot of power in having a third part stand in between you and your money or investment decisions. Being fearful or greedy is natural, but reacting improperly to those emotions can be harmful to your long-term financial health.
A good financial advisor is often well-equipped to help with managing behavior and preventing clients from making quick, emotional, costly decisions with their money. Everything from overspending, to not spending enough, to buying high and selling low, behavioral coaching can be a very valuable service.
Now, although it’s helpful to understand some of the different service offerings provided by advisors, these offerings don’t always represent what a financial advisor ACTUALLY does. They don’t explain the pain point an advisor is addressing or the benefits they are providing. For that reason, I like to think about the role of a financial advisor in terms of what problems they are helping people solve.
We’ll get into this in more detail later, but the types of problems financial advisors help solve largely depends on the type of client they are working with. I.e., a 30-year-old millionaire has a very different set of pain points than a 60-year-old millionaire. They might have the same amount of dollars in their bank account, but their profession, stage of life, family dynamic, geographic location, and many other factors will create very different questions and problems that they need help with.
While an increasing number of advisors are, like doctors or attorneys, becoming specialists and are dedicated only working with one type of client with one set of pain points, most advisors continue to be generalists, offering to help anyone and everyone. Again, we’ll get into this nuance in more detail later, but for now, here are some common examples of problems or pain points that a financial advisor might help you solve for.
-Can I retire? If not, when can I retire?
-How much income can my investments sustainably provide in retirement?
-How much do I need to save each month to retire at age 60?
-What is the best type of account for me to invest in?
-Am I invested properly? Should I take more risk or less risk?
-When should I take Social Security?
-How do I carefully unwind and diversify concentrated investments with sizeable gains?
-My taxes are projected to be higher in retirement than in the working world – how can I lower my tax bill?
-How do I plan for a potential and sizeable long-term care event?
-How do I sell my business and use the proceeds to transition into retirement?
The list goes on, but I think you get the point. And in addition to all of these common problems, just imagine how many more are brought to the surface during major life events like having a baby, getting married, buying a first home, getting a first job, getting divorced, death in the family, a costly legal battle, or even a large windfall.
The point I want to drive home here is that, contrary to popular belief, financial advisors and financial planners do a lot more than just “create retirement plans” or “invest in stocks and bonds” or “sell insurance.” High-quality financial advisors, especially those that have specialized in helping one specific type of person, serve an incredibly important role.
Historically, we’ve just done a terrible job as a profession educating people about what that role is and our profession has been muddied up with unethical salespeople and regulations that permit harmful products to be wrongful. It’s been muddied up with service models that are ripe with conflicts and advisors that lack training, education, expertise, and knowledge. We’ve made a lot of progress in the last 15 years, but we still have a long ways to go.
Now that we have a nice baseline for what financial advisors do and what role they serve, let’s briefly talk about what the typical process looks like when working with one. In its most basic form, there are four stages or steps that typically apply:
First is the diagnosis. And depending on the type of financial advisor you hire, the diagnosis can be done in dozens of different ways. But, in general, just like a doctor wouldn’t write a prescription without diagnosing you first, nobody should be giving financial recommendations of any kind without first understanding your financial health and situation.
How can someone tell you how much insurance to buy or what kind without diagnosing your entire situation first? How can they tell what investments make the most sense? Or if you have enough to retire? The answers to these questions are different for everyone, just like the type of medication and dosage recommended by a doctor. So, in some shape or form, you should expect to go through an upfront diagnosis before receiving any recommendations.
Speaking of recommendations, that would be step number two. With your financial health documented and with a clear understanding of your needs, goals, and concerns, recommendations can be made and questions can be answered. Depending on the type of advisor you hire – and we’ll be digging into this during this series – you might implement these recommendations on your own or work with the advisor to do the heavy lifting and implement them for you.
Which leads to step number 3, implementation. With your diagnosis complete and recommendations in hand, it’s time to implement. It’s rare that everything is implemented all at once and recommendations are usually prioritized based on urgency and importance. And this is why step number 4 is so important.
And that is monitoring. Can you imagine seeing your doctor once and never going back in for a check-up? Every plan, whether it’s a health plan or financial plan needs a system and process for monitoring to one, ensure that the plan remains on track and two, that the recommendations are being implemented properly and on time.
In addition, our lives are always changing and financial plans are fluid. A process to monitor allows for those changes to be taken into consideration and the plan to be updated periodically. Once again, depending on the type of advisor you work with, it might either be your responsibility to monitor or theirs.
With all of this in mind and, hopefully, a good understanding about what a financial advisor is and broadly what they do, let’s briefly touch on what they don’t do.
There are 3 things most financial advisors don’t do.
First, most advisors cannot give specific legal advice or draft legal documents. A good financial advisor with the right expertise can certainly review documents, identify gaps or opportunities, and bring in an attorney to validate and execute. While some wealth management firms do have in-house legal teams, giving specific legal advice or writing legal documents for you is not a service you should likely expect from a financial advisor.
Next, similar to the drafting of legal documents, most financial advisors don’t file tax returns. High-quality advisors with the right expertise will absolutely provide tax advice and tax planning services, but most will outsource the tax filing to an accountant and also work with the accounts to tie a bow on the planning work. Once again, some firms do have in-house CPAs and accountants, but this is not something you would likely expect or need from a financial advisor.
Lastly, and there are no exceptions to this one in my opinion – financial advisors cannot, as hard as they may try, time the financial markets and/or predict the future. As Peter Lynch famously said,
“Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in corrections themselves.”
Some might get lucky and turn that lucky event into a marketing campaign or best-selling book, but expecting your financial advisor to have a crystal ball and be able to predict the future or outperform the financial markets is not something you should expect from them.
I know today’s episode might seem a little biased toward financial advisors and working with one, but don’t you worry do-it-yourselfers, I’ll be doing plenty of defending for you in this series. I’ll be the first to acknowledge that not everyone needs to hire a professional. In fact, if you’ve ever reached out to me, you know that one of the first things I say is that I’m not ever going to convince you that you need my help or that you need to hire an advisor.
My goal is always to educate and provide the information necessary – like I’m doing right now – so that you can make an informed decision and determine what is best for you.
So, with that, next week, we will continue with our financial advisor series and I’ll be talking about the different types of financial advisors, the pros and cons of working with one, and the different ways advisors are compensated.
Once again, for all the links and resources mentioned today, just head over to youstaywealthy.com/174.
And one last reminder to consider my December offering for the More Than Money book. Just go to morethanmoneybook.com, pre-order your copy, send a screenshot to firstname.lastname@example.org and I’ll send you a second copy for you to gift to someone in your life.
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.