I'm Stephanie Sammons, a CERTIFIED FINANCIAL PLANNER™ with more than 20 years of experience and the Founder of Sammons Wealth Management. I help successful women professionals who are in midlife plan for their ideal retirement.
How to Choose the Right Financial Advisor for You

All financial advisors and planners are not created equal. In fact, there are some major differences.

After the 2008/2009 ‘Great Recession’, there became a much bigger distinction between advisors who are registered representatives at broker/dealer firms, and advisors who are independently Registered Investment Advisors.

In this episode, Stephanie talks about what it means to be an independent Registered Investment Advisor, as well as a fiduciary and fee-only Certified Financial Planner.

She outlines a number of qualities and credentials that you should look for when evaluating a financial advisor or planner in midlife, including how advisory fees are structured.

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Not all financial advisors are created equally. In fact, there are some very distinct differences, and these differences have shaped the industry in a major way over the last decade since the Great Recession of 2008, 2009. That's what we're going to be talking about today, how to find the right financial advisor for you in today's environment. Welcome to the Midlife Money Gal podcast. This is the show for independent women professionals who want to learn more about navigating midlife and money. I'm your host, Stephanie Sammons, an experienced, certified financial planner and midlifer just like you.

Welcome back to the Midlife Money Gal podcast. I'm Stephanie Sammons, and this is Episode Seven, How to Choose the Right Financial Advisor for You. This episode is going to be dedicated to really teaching you what the differences are between all the different financial advisors out there, because there are definitely some differences that you need to be aware of. I know that consumers are confused, because I hear about it, and I also know the different ways that we are structured as financial advisors, and what that means to the consumer. Having some education about this, and some knowledge to equip you, will help you make a better decision when it comes up, when it's time to make a change or even if you're hiring a financial advisor for the first time, it's just good to have this knowledge and information at your disposal.

I'm going to walk through five distinct differences between financial advisors, and what you should look for when choosing the right financial advisor for you. Number one, there are really two ways that financial advisors are structured, and I have been on both sides of the fence. The first way where you will find the majority of financial advisors is through broker dealer firms and large brokerage firms. The Merrill Lynches, UBS, Morgan Stanley, to name a few. The advisors that work for these firms are employees of those firms and they are called registered representatives. They are allowed to have the title of financial advisor or financial consultant, but it doesn't always mean that that is what their role might be. You need to look past titles. Titles can be misleading, so these broker dealer firms, they are typically your larger banks and brokerage firms. Sometimes insurance firms, those are included as well.

There are some smaller regional broker dealers out there as well that you may not be as familiar with. For the bulk of my career, the first 15 years of my career as a financial advisor, I worked for these kinds of firms, so I'm very familiar with how they are structured, and how they operate. But there has been a big change and trend happening over the last decade where more advisers are opting for an independent structure, which I'll talk more about in a moment. Why is that? Why are advisors starting to leave the broker dealer environment? Because it's better for their clients and it's really a preferable business structure, and I know this, as I said, because I was on the brokerage side, the big broker dealer firms for a good part of my career, and the way that these firms are structured is they are designed to package up financial products and push them out to advisers who then offer these products and services to their clients.

Really the advisory force is considered a sales force in a way. I also was in various management roles for the big firms that I worked for, and so I have a really in depth understanding as to how these firms make money, where profits come from, and these sorts of things. That's not to say that a sales organization in the financial industry is a bad thing. Life is sales. You have to sell in order to make a living, and that also doesn't mean that clients aren't receiving benefit. They are, but oftentimes under the broker dealer umbrella, you will find conflicts of interest. You will find less transparency for clients to really understand how they're invested, what their fees are, these sorts of things, and many times, in fact most of the time, higher fees. You're going to pay higher fees when you have your investment portfolio at large firms, broker dealer firms.

The other side of the fence is an RIA, a registered investment advisor, and registered investment advisors can be registered across the country or they can be registered in a particular state, or in multiple states. These advisors are really what we call independent financial advisors and firms. They are not beholden to, or they don't have any pressure or obligation to a parent firm. They are not employed by the firm to sell products for the firm, and this is the side of the fence that I am affiliated with today, and how I started my practice back in 2017, and broke away from the larger broker dealer firms as many advisors are doing, and have done. A registered investment adviser is only paid by their clients.

They aren't paid by third parties. They aren't paid referral fees or anything like that behind the scenes. The clients are the only people who actually compensate a registered investment adviser, and because we are independent advisors, we can provide unbiased, objective advice to our clients. We don't have those kinds of pressures to provide certain types of advice, and guidance, and services to our clients, which really much more preferable to someone like me, who is entrepreneurial. I don't like that kind of pressure. I don't like that kind of environment, and in fact, discovered when I left my last role back in 2009 that it really wasn't being a financial advisor that I was so dissatisfied with. It was a very, very difficult time with the markets and the recession, but what I really was dissatisfied with was the environment I was in, and all of the shocking truths that came out about my firm and others during that time, frankly, that was so discouraging.

I was so happy and excited to find a path where I could continue being a financial advisor, which I love, and I do feel it's my highest and best purpose in this world, but I had to find the right structural fit, and that's what an RIA or registered investment advisory practice offers, and that's what it's about. You will see RIAs out there like me that are small, boutique type firms that might have one, two, three, five, or 10 advisors, for example, or there are some very large RIA firms as well. It really runs the gamut. Another thing to note about RIA firms is we have access to custodians, and these are firms like TD Ameritrade, Charles Schwab, Fidelity, to name some of the larger ones, where our clients can hold their accounts and their portfolios, so we don't work for these custodians as independent advisors.

They don't guide us. They don't advise us or anything like that. They just serve as sort of the backbone for our independent financial firms. For example, the custodian that I worked most closely with is TD Ameritrade institutional, so that's something to note. I think people get concerned when they work with a smaller financial adviser or a boutique RIA type practice. They don't know where their money will be sitting, and it's a common misconception. Even as a boutique financial firm on the RIA side, the independent side of the fence, we have access to a lot of the same, if not all of the same operational support, research, investment management services, financial planning tools, technology. In fact, as independent financial advisers, we have more up to date, nimble, flexible technology, and it's very affordable. All of that has driven the cost of delivering financial planning, and financial advice, and guidance down over the years.

It's what made it possible for someone like me to leave a big broker dealer firm, and operate a boutique and nimble financial practice where I can be high tech, high quality, and high touch with my clients. That's the case for most of us who are registered investment advisors, so we really aren't a team of one. There are many of us, and there are also networks where we are connected and we get to run ideas by each other, and help support each other. It's really a fantastic connection that we are able to have, as a way to support each other, even though we own our independent firms separately. Okay, so another really important feature about an RIA, or registered investment advisor, is that we are, most of us are fiduciaries, so what's a fiduciary? You may have heard this term, and it's been... I've seen it on some commercials, as a matter of fact, and it's been more and more in the press, because there were some legal arguments going on over the last couple of years about this term and how it applied.

But a fiduciary, this is number two. When you're choosing a financial advisor, you want to find someone who is a fiduciary. A fiduciary is a financial adviser who is required by law to put a client's best interest first and ahead of our own interests. We have a fiduciary, and legal, and ethical obligation and take an oath to put our clients' best interest first. We are client centered, so what does that mean in plain English, and does that apply to all financial advisors? It doesn't apply to all financial advisors. Registered representatives who worked for broker dealer firms are not fiduciaries. That doesn't mean that those financial advisors aren't putting clients' best interests first. There are always some bad apples, of course, out there on both sides of the fence, but they are just not required by law like we are as fiduciary financial advisors. In plain English, it means as a fiduciary advisor, you put the best interests of your clients ahead of your own, especially as it pertains to your pricing and your terms of agreement.

You also seek to avoid and/or disclose any conflicts of interest, and you are required to be very accurate and thorough with your advice. We also are not in the business of selling products and charging commissions, which I'll talk about in a moment. You want to find an advisor who is a fiduciary, because that ensures that you are going to be working with someone who's focused on putting your best interests first, and is legally obligated to do so. Number three is related to something I just mentioned about fees. You want to find a fiduciary RIA independent adviser who is fee only. As fee only financial advisors, we do not engage in product sales. We do not charge commissions on transactions and things of that nature. We cannot accept referral fees, or third party fees, or anything like that. It is just simply fee only with no other bells and whistles.

You'll find with even fee only advisors, there are several ways a fee only advisor might structure their fees. Some fee only advisors charge a percentage of the assets that they manage for you, so a percentage of assets under management. That is very, very common. Some fee only financial advisors or planners charge by the hour, and do more or less project work, and then some, like myself, charge an annual flat fee that is typically billed quarterly or monthly, and it's based on the overall complexity of your financial situation. I chose this fee structure because it makes the most sense for me and the way that I want to grow my financial practice, and it's what I feel is most appropriate for the types of clients that I work with. It's very easy to understand. It's plain and simple, it's very transparent, and it's really based on how complex your financial situation is.

For that reason, it's fair as well, and it's not tied to the performance of your accounts, whether your accounts go up or down. It's just a flat fee, and that is also a common structure that fiduciary RIAs, RIA financial advisers are using today. All right., Number four is find an advisor who is a certified financial planner. 20% of all financial advisors out there are certified financial planners, around 20%. It may be a little more than that today, and that's not a huge number, and the reason why is because it's very difficult to get the CFP certified financial planner certification. Another interesting statistic is that not only are 20% of advisors women, only 20% or so of all financial advisors are women, also only 20% of certified financial planners are women. You kind of find that across industries, but we're working really hard to get more women into this profession and get them certified.

What's the deal with the certified financial planner? As I said, it's very difficult to get this certification. I got mine in 2005, and I literally studied for a year for this thing before I took the exam, which back when I took it, it was two days, so it was very tough to get. I did pass it the first time. Many people it takes a couple of times, or sometimes three times to pass it. It's just... It's not an easy test. There's a CFP board that oversees all certified financial planners, and we have to meet certain educational requirements. We have to pass the exam. We have to have a certain level of experience before we can even sit for the exam. There is an ethics requirement, and there is an ongoing continuing education requirement. Also, certified financial planners have knowledge in overall financial planning, tax planning, estate planning, investing, insurance, and retirement planning, so it's a very wholistic, comprehensive designation, and certified financial planners have a financial planning mindset.

That leads me to number five. What you should look for when choosing the right financial advisor for you. Number five is a financial planning based advisor. Why is that so important? If you go back and listen to the prior episode, Episode Six, I talk about the value of financial planning in midlife, the kind of impact it can have on your life right now, and every year going forward, as you move toward your future self and your vision for retirement, or maybe if you're in retirement, as you move toward making sure you don't outlive your assets, and that you can sustain your lifestyle, and pay for your healthcare, and all these really critical things. Financial planning is what gives you those answers, and it drives everything in your financial life once you get started on the process. It aligns your financial assets and your actions with your real life goals.

I'm a big fan of using planning as the foundation for client relationships. The investing part, the investment management part of this role as a financial advisor has really changed over the years. I remember when I started in this industry back in 1995, and I was researching and trading stocks, and that has completely changed. In fact, investing successfully has become such an efficient process that it does not take a rocket scientist to do it well. What it does take is keeping your emotions in check, having good financial behavior when things are going up, and down, and all over the place, and having a financial advisor who can guide you along the path, and keep you on track, and keep you invested even during the most difficult times. The bottom line is that most financial advisors out there are very good people, and they're smart, and they're intelligent, and they're putting your best interests first.

As I said, there are always some bad apples, some bad actors, and you need to always do your homework, and do your research when you make such a big decision of who you're going to partner your financial life with, but it's really important, I have found, that you like who you work with, you genuinely like the person, you feel a connection with the person, and that you trust your financial advisor. That is what matters most above and beyond how the advisor is structured with the business, what kind of fees they charge, et cetera. If you choose a financial advisor that you already like and trust, and on top of that, you choose someone who has the qualities in the skill sets that I've talked about on this episode, such as they are a registered investment advisor, they are independent, they're fiduciary, they are fee only, they are a CFP, and they are a planning based advisor, then you're just that much better off with your situation.

As you can see, though, it's confusing, and there is a lot of misinformation out there, so I hope that this information can help you make better decisions when it comes to choosing who you partner with for your financial life. You've been listening to The Midlife Money Gal podcast. You can follow me on Instagram, @stephaniesammons and Facebook, at Stephanie Sammons, CFP, or visit retirementmoneygal.com. If you haven't yet, go to Apple Podcast and subscribe, rate, and review this podcast. Join me next week for another episode on navigating midlife and money. Thanks for listening.

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