Ascertaining price, and what you get for that price, when looking for a financial advisor is as difficult as any purchase I can think of.
One would think a logical place to start is a provider’s title. After all, a Lawyer practices law, and an Accountant does accounting. However, unlike many other industries, “professionals” in financial services can call themselves virtually anything under the sun based on what they think sounds best to the people they are trying to attract (Financial Advisor, Financial Planner, Investment Manager, Stock Broker, Wealth Manager) regardless of whether the services they offer match their title.
Price you would think would be straight forward. However, an upfront price is only quoted by a select group of providers, called Fee-Only planners, who operate in a model where the only compensation they receive is directly from clients. Alternatively some services would appear to be free as there is no check to write or visible fee. However as adults we know there is no such thing as a free dinner and those fees are rolled into the cost of the insurance policy or annuity the advisor recommends.
Coincidentally, if you find your Advisor via a free dinner offer, you will most likely be sold an insurance product as the hidden fees are lofty enough to provide free dinners to any prospect who will show up to the invitation by the few who actually sign on as clients.
Still others will quote a fee based on a percentage of something because for whatever reason a percentage of something sounds better to the consumer than a hard dollar figure. These fees are typically taken out of the investment accounts directly which makes the cost of working with the advisor less transparent.
The important take away here is when you are interviewing someone to help you with your money, make sure to understand exactly what the advisor will be paid to work with you and ideally what that pay is based on so you know what to expect in terms of the future costs of working with that advisor.
Perhaps even more difficult than understanding what you will pay the prospective advisor is gaining a clear understanding of the services you will receive for that price. For the most part the “what you get” portion of the equation is dominated by two offerings disguised in any number of fashions but basically break down to the sale of an insurance product (life insurance, disability insurance or an annuity) or investment management advice (folks who will tell you what to do with the excess savings you have already accumulated).
The advisor selling the insurance product may call himself a Financial Advisor and appear to offer a financial plan that includes the client’s name and a few personal details when in reality they are often using a canned plan where all roads lead to the sale of whatever product they are selling. This can be referred to as the financial plan as a selling tool instead of what it should be – the primary offering.
The investment manager is typically compensated by a % of the assets you transfer under their management. They may appear to offer services in addition to managing those investments, but in the end their pay is a function of the amount of assets they can get you to move under their control so 90% of their attention is focused on “selling” you investments.
There are Real Financial Planners out there that offer a financial plan that includes not only an unbiased insurance review or an investment plan appropriate for your situation, but also a review of your cash flow, estate plan, goals clarification, assistance in minimizing your annual tax liability, annual tax filings and assistance with anything else that comes up in your financial life. While others may claim their services are comprehensive, these Real Financial Planners offer what is truly a comprehensive plan. Even among comprehensive financial planners, the service offerings are not an “apples to apples” comparison. Some will just hand over the plan and expect you to implement it while others will actually walk you through the implementation step by step which is the ideal scenario to ensure effective plan implementation.
The takeaway in terms of quantifying the value of the services is getting really clear on exactly what the advisor is offering and how it will be delivered.
So, choose your financial advisor using the sage words of Warren Buffet and remember, “Price is what you pay, value is what you get.”