In today’s ever-evolving financial landscape, managing all the moving parts of your financial life has become increasingly complicated.
The sheer amount of investment options, tax regulations, and the volatile nature of markets have made expert financial guidance more important than ever.
This article aims to shed light on how to find the right financial advisor—a decision that can significantly impact your financial well-being.
We will explore the pros and cons of DIY financial management, decode the different types of financial advisors available, and provide valuable insights into making the right choice.
The Rise of DIY Solutions
In recent years, the financial world has witnessed a surge in do-it-yourself financial management solutions. Technology platforms and online tools, such as internet-based trading platforms and a plethora of financial planning apps, have empowered individuals, making it easier for people to manage their own portfolios, do their own financial plans, etc.
The Pitfalls of Going Solo
While DIY financial planning may appear enticing, it comes with its set of challenges and potential pitfalls. The availability of tools often can add to confusion rather than reduce it. This ability to “do-it-yourself” can often instill a false sense of confidence that is reinforced in stable markets. And while technology is important, even the best system may be unable to apply the various intricacies of financial planning considerations to your individual situation.
The fact is that the majority of individual investors lack the time, expertise, and resources to navigate the multifaceted landscape of financial planning effectively on their own. Comprehensive financial planning encompasses estate planning, insurance, and investment management. Bringing together these various facets of a person’s life requires a broad field of knowledge. In my experience, this is usually best approached with the help of advisors with the educational background, tools, and experience to bring this knowledge to a client’s own situation.
Decoding Different Types of Advisors
There are several types of financial advisors you can work with. You need to know the pros and cons of each before deciding which one to go with.
Wirehouse Advisors: The term “wirehouse” refers to large, often publicly traded institutions. We’ve all heard the names of them, Merrill Lynch, Morgan Stanley, UBS, etc. These institutions offer the advisors who work for them access to varioust sales resources, back-office support, and investment research.
However, there’s a catch. Wirehouse advisors usually operate as employees within a hierarchical structure focused on growing revenue. These advisors are often under significant pressure from management to hit certain goals which can create a focus on sales vs. service.
Bank-Based Advisors: Consolidating banking and financial planning relationships may seem convenient, with many banks and credit unions offering benefits to customers with both retail and wealth management accounts.
While bank-based programs have improved, they often share similar limitations with wirehouses. Banks prioritize their core banking services, potentially leading to gaps in their investment programs. Additionally, bank advisors are employees of the bank and as such are limited to recommending the banking products offered by their employer. This limits their product shelf and may result in the recommendation of a loan, credit card, or bank account that may not be the strongest offering in the marketplace. Further there is often an expectation for bank based advisors to “refer back” or “cross-sell.” This creates a pressure situation that often leads to another conflict of interest for the advisor.
Insurance Agents: Insurance agents have expanded their services beyond insurance, offering insights into broader financial needs. Recognizing the importance of protection and risk management, these professionals have diversified their skill set.
However, standalone insurance agents may predominantly emphasize insurance and annuity products, even when different options might better align with a client’s financial goals. Furthermore, they often operate within constraints imposed by their employing companies, limiting their product recommendations.
Independent Advisors: Independent advisors maintain affiliations with broker-dealers or registered investment advisors (RIAs) but operate independently as business owners. Many also have insurance licenses and are appointed with multiple carriers. Partnering with large broker-dealers or RIAs equips independent advisors with the autonomy to function independently, while still being able to offer access to the same diverse investments, and insurance products that wirehouse advisors, bank advisors, and insurance agents offer.
The independent model eliminates numerous conflicts of interest, as independent advisors are not obliged to promote proprietary products or meet sales quotas driven by their employer. Their primary focus is on serving the best interests of their clients and helping them pursue their financial goals.
Ultimately, the true employer of the independent advisor is their client, and they serve at their pleasure.
This flexibility and alignment of values is why we at Good Life Financial Advisors of NOVA operate as independent advisors.
Making the Right Choice of Financial Advisor
Selecting a financial advisor requires a thoughtful approach. When choosing one, consider the advisor’s experience, skills, compliance record, and the personal rapport you establish with them. It is crucial to choose an advisor whose approach aligns with your individual financial situation and goals.
As your financial life grows in complexity, expert guidance can often prove invaluable. In fact one of the biggest jobs of any financial advisor is to help you avoid making the mistakes that are common to the do-it-yourself investor. However, hiring the right financial advisor is not a process to be taken lightly. We hope this article helps to clarify some things you should consider as you hire a financial advisor to help you. You should carefully consider who an advisor actually works for, what limitations they have on products they may offer, and most importantly if your values align with their approach.
If you’d like to see if our approach aligns with your values…
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Good Life Advisors, LLC, a registered investment advisor. Good Life Financial Advisors of NOVA and Good Life Advisors, LLC, are separate entities from LPL Financial.