The financial planning profession is a truly remarkable one. For those of us who entered into this field with the right intentions, there is no greater reward than seeing real-life clients succeed day in and day out.
Unfortunately, there are a ton of misconceptions held by those outside our industry about what we do—who do we benefit, what we provide, how much do we cost, and more. So, we’re here to set a few records straight and hopefully help guide you in the direction of the right advisor for you.
Myth #1: All Financial Advisors are Qualified
Reality: Anyone can call themselves a financial planner, but not all of them are. Actual financial planners have different designations, certifications, areas of expertise, and fee structures.
If you’ve never worked with a financial advisor before, it can be difficult to differentiate between the different types. One of the most long-standing myths about financial advisors is that anyone who identifies as a "financial planner" must have earned that title through extensive schooling, experience, or qualifications. In reality, though, anyone can call themselves a financial planner.
Generally speaking, however, those who refer to themselves as financial planners fall in one of two categories: (1) Registered Investment Advisors and (2) registered representatives.
Registered Investment Advisors (RIAs) are fiduciaries who are held to a high standard of conduct by the Securities and Exchange Commission (SEC), and as such are required to put their clients’ best interests at the forefront of all their planning advice. RIAs are also required to disclose any potential conflicts of interest through an annual ADV offering that could hinder their acting in an ethical manner in their business dealings.
RIAs are compensated either by an Assets Under Management model, a fee model, or a combination of both. They are not compensated by third parties for the sale of financial products.
Registered representatives are not advisors, but sales professionals pushing financial products. While some of them charge fees for their product recommendations, they likely also receive commissions for the sale of certain products. This model, as you have likely concluded already, presents a complete conflict of interest for the consumer. How do you know if the “advice” your being offered, or the product you are being sold, is truly what will benefit you most or just recommended to you to complete the transaction? Traditional brokers and insurance agents fall into this category.
Of course, this is all just a detailed way of saying that you will want to make sure you are working with a true fiduciary. Luckily, it is surprisingly easy to research an advisor’s designations and their history. You can check your advisor’s background using FINRA Broker Check and a quick Google search to learn more about their designations. The gold-standard certification for financial advisors is the Certified Financial Planner®(CFP®) ; these advisors have to meet heavy-duty educational and experience requirements to earn this coveted title. You may also want to request that the advisor confirm in writing what potential conflicts of interest may exist before deciding to work with them.
Myth #2: Financial Planning and Investment Management are the same.
Reality: Investment management is only one subset of financial planning.
Financial planning is a highly personal and intricate process which involves far more than investment management. Tax planning, estate planning, business planning, life planning, and ongoing monitoring and facilitation are also part of a comprehensive financial plan.
While some financial planners serve as investment managers, the reverse is not always true. Investment managers focus only on using your money to reach investment objectives, not necessarily on your particular life goals. Comprehensive financial planning considers the entire picture.
Of course, this only makes sense, because movement in one area inevitably affects the other. The tax implications of your investment for example are critical to preserving the longevity of your wealth and ensuring you do not outlive your assets in retirement. How and where you invest your assets will also have implications for your legacy plan, as well. In order to optimize your success, you must consider how movement in one cog of the machine will impact another.
Myth #3: Some Financial Advisors Work for Free
Reality: There are a number of ways you are charged for so-called “free” financial services.
Not to be Captain Obvious here, but commercials can be terribly misleading, especially to consumers who aren’t familiar with the financial services industry. Many corporate firms are advertising “free trading” or “portfolio management” for less than it costs to pay an advisor, which can be appealing, but there are a number of ways you are still paying for these limited services, including:
- Investment Costs: the price paid to buy or participate in an investment.
- Administrative Costs: custodial fees, trading costs.
Sure, you aren’t paying advisory costs, but you get what you pay for. When you work with a large corporation or opt to use a robo-advisor platform, you must ask yourself this:
Who is going to understand the intricacies of your family, your core values, and your life goals better: an independent advisor who has spent hours learning about your situation, or a person in a corporate office you’ve never met before?
Who will you rely on to make sure your assets pass successfully to your heirs, your taxes are limited, and your business succession plan is sufficient to fund your retirement?
More Than Just Investments
Financial planning is about so much more than investments, it’s about getting what you really want out of this short life we are handed. If you ask any of our clients, they will likely tell you that the true cost of NOT hiring a qualified advisor could potentially be more expensive than hiring one. The key will be finding one who can help address all your planning needs and make the process as enjoyable and successful as possible.
Of course, we know there is no yardstick by which to objectively measure a financial planner’s value, which is why doing your research ahead of time is so important. Begin by interviewing advisors who specialize in your career or life path and narrow down your list from there based on credentials, service model, fee structure, and overall likeability.
At RiversEdge Advisors, we specialize in working with business owners and entrepreneurs locally in Delaware and virtually throughout the country. We are not only RIAs but Certified Financial Planner®(CFP®) professionals who feel most rewarded when helping business professionals and their families achieve their life goals.
If this type of advisor relationship sounds like a good fit for you and your business, we encourage you to reach out. Take a tour around our site or schedule a complimentary Discovery Call with us today. We look forward to learning about you and your business.