Hiring A Financial Planner As A Newly Married Couple
When it comes to hiring a financial advisor/financial planner, there are some things you should think about before you make your decision. The term “financial advisor” is so broadly used, it can end up in you hiring someone who says they are a financial advisor, but in reality they just sell you insurance & put you in high fee mutual funds. I would recommend looking for a financial planner1 as someone you should partner with. Why? Well, they should help you with planning all things finance in your life. You have a question on retirement planning? They can help. You have a question about buying a home? They can help. You have a question about your estate planning? They can help. You have a question about your 401k allocation? They can help.
A financial planner (which is also a financial advisor, confusing… I know) is a person who helps you will all aspects of your financial life. This image is a great depiction of all things a financial planner can give you advice on.
The problem is, a couple can think they are hiring a financial planner, when in reality they end up with a disguised financial advisor2. This is someone who says they will help them with their financial life, but all they try to do is sell them on whole life insurance and put them in high fee mutual funds (where they earn a 5% commission every time you buy it). So what should you look for when hiring a financial planner?
Fee Only
There are 3 main ways that financial advisors can get paid. Commission, Fee Based & Fee Only.
Commission
Your financial advisor tells you mutual fund XYZ is great to buy. You put $10,000 into it. Your financial advisor gets 5% commission for selling you on that fund. They are paid $500 in commissions for making the sale.
Your financial advisor tells you to buy a whole life insurance policy. The premiums are $300/mo. They are paid 150% of your first year premium as a commission (in this case $5,400).
Commission based advisors are paid only when they make a sale.
The problem with commission based advisors is if the only way they can make money is by making you buy something, there is a pretty big conflict of interest.
Let’s say mutual fund ABC is the same as mutual fund XYZ. Based on expense ratio, performance & other data points, mutual fund ABC is the better buy. However, the advisor (I prefer to call them salesman in this example, but thats just me) only gets paid off selling shares of mutual fund XYZ, what fund do you think they will recommend you buy?
Commission based advisors usually have conflicts of interest (that they usually don’t disclose to you).
Fee Based
A fee based advisor is the hybrid between a commission advisor and a fee only advisor.
Parts of their business are commission and other parts are fee only.
Since there is a commission aspect of their business, the conflicts of interest are still there. They are still incentivized to sell you on certain products (even though they are the best for you) because they will get a commission check.
Fee Only
Before you decide to work with a fee only advisor, they tell you exactly how you are going to pay them, the work that is going to be done & oh, they cannot earn any commission (which minimizes their conflicts of interest by A LOT).
They charge either by assets under management %, flat fee or hourly fee.
Example: Your fee only financial advisor charges you $300/mo for financial planning & 1% AUM (assets under management) to give you advice on your entire financial picture.
Transparency: There are no hidden commissions that a fee only advisor will try to sell you some insurance policy so they can get paid.
Since there are no commissions to be made, the conflict of interests are way less than commission based advisors.
Let’s say mutual fund ABC is the same as mutual fund XYZ. Based on expense ratio, performance & other data points, mutual fund ABC is the better buy. The commission based advisor will sell you on XYZ (because they are only getting paid commissions on XYZ). A fee only advisor should recommend mutual fund ABC. Why? Because they do not earn commissions to sell you specific funds.
Fiduciary
A fiduciary is a financial advisor who is legally and morally obligated to act in the best interest of another person or entity, rather than their own. Simply put, a fiduciary is required to put their clients interests ahead of their own.
Why is this something to look for? Well, in the financial advisor world, not every advisor is a fiduciary. Crazy, I know. This means there are advisors out there right now who are not required to put their clients interests ahead of their own. Those types of advisors (which there are a lot of them) fall under the “suitability” standard. This means the only requirement they have to follow is recommending investments/products that are appropriate for the client.
Another way of saying this is a suitability advisor can pretty much sell/recommend anything to a client & argue it was suitable. That, to me, is crazy.
A fiduciary advisor has to put the clients interests over their own. A fiduciary advisor has to recommend investments that are in the best interest of the client, not of the advisor. Being a fiduciary advisor minimizes conflicts of interest. How? Well, if there are two ETFs to purchase that are the exact same and their expense ratios are 0.05% & 0.75%, the suitability advisor could recommend the 0.75% (probably because they are getting a kick back via a commission to sell you that) while the fiduciary advisor would recommend the 0.05% because they get no commissions. This in turn would save the client $700 a year in fees on a $100,000 portfolio. The fiduciary advisor is doing what is in the best interest of the client, which in this case is saving them money in fees.
Independent
Let’s say you call up a Fidelity advisor to manage your investments. What funds do you think they will recommend you buy? Hint: Probably Fidelity. Let’s say you call up a Northwestern Mutual advisor (they are really just salesmen, but that is a conversation for another day) to manage your investments. What companies insurance products do you think they will recommend you buy? Hint: Probably Northwestern Mutual. Does that mean Fidelity funds are the best for you to buy? Does that mean Northwestern Mutual insurance products are the best for you to buy? Maybe, but maybe not.
An independent advisor is someone who is not tied to a company which means they are required to only recommend their own products/investments. Think of an insurance broker. If you have ever called up an insurance broker, they will shop around different carriers to find the best price & coverage for you. This is how independent advisors work.
An independent advisor is someone who can look around at different investments from different companies, look at different policies at different companies, to find the best one for you, the client. Independent advisors are not connected to a large broker dealer. This means they can hold Fidelity funds, Vanguard funds, BlackRock funds, any funds (or a mix of them) to get the best portfolio for a client. They can look around to find the best fund for the best fee. They can help advise the client on reviewing life insurance policies or reviewing their property & casualty policies from any carrier. They are independent of a larger broker, which allows them to find the best investment/product/outcome for the client.
Holistic
Imagine you walk into the doctor with a broken foot. You go back to the room & he looks at your foot & says “Your foot is definitely broken & I can help you with that. However, I noticed your knee has issues too, but I am going to act like I don’t know that because it is too much work to look at it”. How would you feel? Maybe a little confused, upset, worried there might be a bigger issue that your doctor isn’t helping you with? Okay, that may be a bad example, but to put this into advisor terms, many financial advisors simply focus on your investment portfolio without caring about every other aspect of your financial life. They only focus on the returns of your portfolio, which are important, but there is more to it than just returns on a piece of paper. A financial planner will look at your entire financial picture, including investments, to help you achieve your financial goals.
Holistic financial planning is designed to help you create a plan that covers the individual parts of your financial life while ensuring that they all work together. For example, a holistic financial plan can include:
Investment strategy
Retirement planning through a 401(k) & IRA
Social Security and Medicare benefits planning
Long-term care planning
End-of-life planning, including the need for advance healthcare directives or power of attorney
College planning
Insurance planning
Estate planning
Tax planning
Budgeting
Saving for short- and long-term financial goals and needs
Business and succession planning
Charitable giving
Major life changes, such as a divorce, marriage, job loss or the birth of a child
Anything that relates to money, you should be able to call your financial advisor & ask him/her questions. “Hey, we are looking to buy a house in the next few years, what are some things we should be thinking about?” or “Hey, should we be maxing out our 401k or is it smarter to build up our taxable account?” or “Hey, we just had our first child, how should we start planning for college?” (hint: A 529 plan)
Holistic financial planning is usually what people want when they hire a financial advisor. The problem is, most disguised financial advisors only look at the portfolio they manage & nothing else. So make sure the financial planner you are about to hire does holistic financial planning.
Customized
A big box financial firm (think Fidelity, Edward Jones, Northwestern Mutual, NY Life, Charles Schwab, etc.) is not customized at all. Unless you are bringing over $10M+, they are probably just going to charge you a fee, put you in high fee mutual funds (because they get a nice commission check to do so) & talk to you once a year, if that. There is not customization of your plan, it is simply just a cookie cutter investment portfolio.
What happens in practice is financial advisors who are at big box firms usually have 150-300 households they are “advising”. It is pretty difficult to give customized advice to each household when you have that many.
If that is what you are looking for, great! However if you are looking for customized advice about your situation (hint: everyone has a unique situation) then going to an advisor that isn’t customized means you won’t be getting the service you are expecting.
Age
Did you know the average age of a financial advisor in the United States is around 56 years old? In that same study3 it showed that 20% of financial advisors plan to retire within the next 5 years (this study was done in 2023, so more like 2 years away from retirement). Age is an important factor when picking a financial advisor. Let’s say you are 37 years old & you decide to partner with a 58 year old advisor. They may retire in 5 years. You will be 42 years old & still looking to get advice. What usually happens? They just hand you off to a younger advisor at their firm who you have no relationship, not trust with & you may not even like. This is not an ideal outcome. It makes sense to partner with an advisor that will not only get you to retirement, but even advise you in and through your retirement.
At the end of the day, partnering with a financial advisor is a big step & I want to make sure you are not choosing one who doesn’t give you the value you provide. It is all about price vs value. If you are paying a fake financial advisor for 1% AUM fee + commission + high fee mutual funds & all you get in return is investment management (and them never returning your phone call), then that is probably not worth it.
If you are paying 1% AUM (and that’s it) & you are getting a financial advisor who advises you on investments, retirement planning, insurance planning, tax planning, cash flow management, estate planning & much more, then the price is worth it.
Thanks for reading & I hope you found value in this post.
-Kolin
If you are looking to get organized on your finances, read this post: Getting Your Finances Organized As A Newly Married Couple
Disclaimer: The content provided in this blog post is for educational purposes only and should not be considered as financial advice. While every effort has been made to provide accurate and up-to-date information, the content on Money Matters For Two is based on personal research, opinions, and experiences. The financial landscape can change rapidly, and what may be applicable at the time of writing may not necessarily be applicable in the future.
Any financial decisions you make based on the information provided here are entirely at your own risk. Money Matters For Two encourages readers to do their own research and, when necessary, seek the advice of a qualified financial advisor or professional to ensure that any financial choices are appropriate for their individual circumstances.
The terms financial advisor and financial planner are often used interchangeably. However, they actually refer to two different types of professionals who offer distinct services. While both offer guidance on investments, taxes and other financial matters, financial advisors generally focus on managing an individual’s investment portfolios, while financial planners take a look at the entire financial picture and long-term goals.
I am not claiming financial advisors are bad people. However, it’s usually the firm they are hired by that has the bad practices that restrict financial advisors from being fiduciaries. Of course there are always bad apples in the industry too. I just am passionate about people partnering with a “financial advisor” who really isn’t a financial advisor & thinking they are getting great advice.