Will the “REAL” Financial Expert please step forward? (Revised)
The financial service business inundates us with titles like financial advisor, financial coach, stockbroker, insurance agent, investment advisor, investment manager, and financial planner. People find it difficult to locate the right type of financial advisor for their needs. All of them perform various roles in the financial service sector. However, a financial planner is like your general medical practitioner. The medical general practitioner sets up your health baseline and prescribes a treatment plan for your well-being. A financial planner creates your financial health baseline and prescribes a treatment plan for your financial well-being.
A financial planner may refer you to a specialist if your financial condition needs specific attention. For instance, if your life insurance falls short of providing the protection you need for your family, your financial planner may refer you to an insurance agent who specializes in providing life insurance. Additionally, if your investment plan lacks the diversity necessary to increase and grow your financial portfolio, like real estate, your financial planner may refer you to an advisor who specializes in the area that needs attention. Therefore, a financial planner should be the first advisor you seek to fulfill your financial health needs. A plan must be made before it can be executed. A financial planner can aid you in creating your plan.
The problem is that people often choose the wrong advisor to begin their financial journey. To add more complexity, many specialist engage with investors while presenting themselves as general practitioners. Abraham Maslow said, “I suppose it is tempting, if the only tool you have is a hammer, to treat everything as if it were a nail.” These advisors should refer the investor to a financial planner first, instead, they fulfill their own needs by offering advice and products that may not be in their client’s best interest. A life insurance agent posing as a “retirement specialist” to sell annuity products only specializes in life insurance and annuity products not retirement services. My grandfather always said, “beware of people wearing suits, they only want to sell you something.” There is a bit of wisdom in that statement.
Unfortunately, there is no clear solution to this problem. It all boils down to education. Start by choosing a fiduciary financial planner who only works in your best interest. A fiduciary planner/advisor is not trying to fill their selfish needs, on the contrary, by law, they must act in the best interest of their client (Investment Advisor Act of 1940). This does not mean that the advisor can say they recommend products that are “suitable” for their clients. Both stockbrokers and insurance agents can say they only recommend products best suited for their clients. This does not make them a fiduciary advisor. An effective way to distinguish between a specialist and fiduciary advisor is to look at their centricity. In other words, are they insurance centric, investment centric, or planning centric? Additionally, how do they get paid? If any of their income comes from commissions or third party actors, and not directly from their clients, they are not true fiduciaries.
A fiduciary financial planner is knowledgeable in all financial services, including the products offered. More than likely, they have worked previously in one or more of these specialties. They will create a plan that touches on 7 major areas of personal finance, Risk Management (Insurance), Investment Management (Investing), Cash Flow Management (Income, Expenses, and Liabilities), Estate Planning (Trusts, Wills, and Wealth Transfer), Tax Planning, Retirement Planning, and Philanthropy Planning. Then, they will aid you in the implementation process. They are planning centric.
Lastly, do not put too much stock in certifications. There are over 200 certifications for financial advisors. More are being created every day. I would be more interested in their formal professional education, not their certifications. A long alphabet soup of certifications does not a fiduciary make! Again, fiduciary financial planners are the best place to start your financial journey.
Your faithful servant
