How to Choose the Right One For You & What You Really Need to Know
Well, when I can’t make something sound warm and funny, I have just got to say it.
Clear simple language is so important when it comes to this topic and when working with your money.
Choosing a Financial Professional to work with on your financial goals is not very easy. In fact every single “advice piece” designed to help you with the questions you need to ask to do your due diligence that I have ever read is not everything you need to know. Good advice, just incomplete.
While it is important to work with someone whose personality you like, there is more to know. And don’t feel like you should already know this. The financial services industry in regard to insurance, investments, and financial planning is very fragmented due to regulatory issues assigned to each category. It is confusing to professionals who work in the industry also, at times.
What you really need to know are the following 6 basic constructs. Having this basic understanding of how the financial services industry is structured in regard to insurance, investments and financial planning is the foundation of doing your due diligence in who you want to work with.
I hope this is helpful for you! You can reach out to me if there are questions you have or clarifying points that you want.
What is it you want to accomplish?
Financial Advisor is a generic title: What kind of Financial Advisor are they?
Follow the Money: How is the Financial Advisor paid and What are they paid for?
Financial Planning is a service. A fee for service (like CPA, attorney, medical doctor).
Financial Advisor is selling product on a commission basis (or on a fee basis as a Registered Investment Advisor).
A Financial Planner is not the same as a Financial Advisor.
What Do You Want to Accomplish?
Do you want help saving more money? This is financial planning: cash flow and budgeting and creating a plan for savings. This a financial planning service on a fee basis.
Do you want help eliminating debt? This is financial planning: debt management. This is a financial planning service on a fee basis.
Do you want to use debt to strategically create assets? This is financial planning: debt management. This is a financial planning service on a fee basis.
Do you want to save and invest more money for retirement? This is financial planning: cash flow, debt management, savings and investments. This is a financial planning service on a fee basis.
Do you want to focus on investments? This is financial planning: ditto the point above and the integration and coordination of various other investments with your cash flow, savings, and retirement accounts. This is a financial planning service on a fee basis.
Do you want to purchase an insurance product? You will want to work with an insurance agent or broker. The insurances world is on a commission basis for the agent or broker.
Do you want to purchase investment products? Financial advisor as a Registered Representative (a commission basis) or as a Registered Investment Advisor (fee basis).
Example for You
Mary S. McMahon, CFP®, RICP® Professional Services
Managing Member, MSM Advisory, LLC
CERTIFIED FINANCIAL PLANNER™ Professional - CFP® providing the professional service of comprehensive planning for successful financial decisions for today and the future. Fiduciary standard, ethically and legally. Financial planning on a fee basis.
Registered Investment Advisor managing investments. Fiduciary standard, ethically and legally. Financial Advising on a fee basis.
Licensed in General Lines Insurances: Life Insurance, Disability Income Protection Insurance, Long Term Care Insurance, Health Insurance. The insurances industry as a whole is on a commission basis. There is no fiduciary standard, ethically or legally, to the consumer in the insurances industry as a whole. I do work on a fiduciary basis ethically and legally in my insurance work as a natural extension of my fiduciary obligation as a CFP®. I work as a broker in General Lines insurances. Commission basis.
Additional Focus Points for You
Mary feels it is important to be transparent on the roles of a CFP®, Financial Advisor, and Insurance Agent /Broker. Planning is not Advising. Financial Advisors are not Financial Planners. CFP® is the only standard for comprehensive financial planning.
However, most CFP®s work as Registered Investment Advisors focused on investments: assets under management for a fee. The title on the card is Financial Advisor.
Choose the Right Financial Professional for the Right Job
Mary feels this is important information for the consumer to have when making a choice of doing comprehensive financial planning, wanting to purchase investments or wanting to buy insurances. Choose the right professional for the job. This is a maxim applicable to life, period.
The consumer has an expectation that all industry professionals work on a fiduciary basis ( in the best interest of the client ) and most professional work done in the industry is not done on a fiduciary basis. I have experienced a lot of consumers highly disappointed by their experiences working with financial services professionals. Disappointed because they spent time and money and did not get what they thought they were going to get. I think we can both agree, this is horrible.
The financial services industry is a highly fragmented industry with lots of regulatory practices that do not “add up” to a fiduciary standard to the consumer.
It is truly a “buyer beware” environment for consumers when choosing a financial services professional. And not only is it terribly confusing for the consumer; it is just as confusing for many Financial Advisors especially the Financial Advisors who would like to practice Financial Planning alongside their financial advising. The fragmentation of the industry and the lack of a fiduciary standard across the board is difficult for the consumer and the industry professional alike. Understood by Mary and noted.