You Need to Avoid These 3 Errors When Hiring a Wealth Manager

“You have qualified for a free financial consultation,” should have been the clue to run away. My wife, who was retiring from a major corporation, was given this offer as part of her package. We thought, why not, we have several questions and choices we need help with. So we went.

That was a waste of time. The company is very well known in the field; in fact, we have some investments with them. But the guys we met with looked about 12, and couldn’t answer any of the reasonably complicated tax and investment questions we had. But they could sell us a commissionable fund they were pushing on us.

We had been down that road before.

Remember the 1990s? You could throw a ten-dollar bill out of your car window, and a twenty would blow back in. You couldn’t help but make money in almost any investment out there.

Almost

We had another financial adviser at that time. I won’t mention the name of the company, but it rhymes with Darryl Finch. This was after another “free” financial consultation. She pushed a couple of funds on us after a long speech full of jargon, filled with words like, diversify, soften your position, and volatility. She was a former business associate, so we decided to trust her. Plus, she used all those spiffy words.

The funds tanked

Nothing anywhere was going down. You couldn’t possibly lose money in the market, and yet these funds lost money in three consecutive quarters. It turns out, these were private funds of theirs with a high commission for the broker.

We fired her and walked away

We have been through a few more advisers over the years, some good and some bad. In the end, we joined 75% of the American public who manage their own money. In fact, according to a CNBC survey last year, only 17% manage their money with the help of a financial adviser.

After some of our experiences, I can understand why.

But managing your own finances isn’t for everyone. And there are outstanding and highly qualified individuals out there that can help you navigate the quagmire of investment advice that can confuse the brightest of us.

If you are looking for financial help, avoid these three errors we encountered in our journey toward retirement and fiscal freedom

Hiring Just Anybody

Everybody knows a guy that knows a guy. But don’t put some random stranger in charge of your wealth management. You need to follow the same process you would hire a doctor, lawyer, or auto mechanic:

Ask around. Check with friends and family in similar financial circumstances. Ask your banker and insurance agent if they have recommendations.

Also, you need to be targeting someone with the right specialty. Do you need retirement planning, or are you a young professional just starting a family? Do you own a small business, or are you a high net worth individual needing to protect your assets and investments?

Meet and interview several candidates. This is very much akin to finding a new doctor, except it’s your financial health at stake. You need someone you trust, are comfortable with, and speak to you in a non-condescending way without all the jargon. If they start throwing out a bunch of terms and won’t or can’t take the time to explain what they mean, walk away.

Hiring someone with the wrong credentials

Just like with any profession, there are licensing requirements and certified credentials a qualified financial adviser should have. Tests they should have passed include, but are not limited to, Series 65 and 66 examinations. Ask about their test scores. If they look confused, walk away. The candidate may also have become a Certified Financial Planner, which is an excellent thing. They should also have a Registered Investment Adviser license. Being a CPA wouldn’t hurt either.

The critical takeaway is they need to be a fiduciary, who is bound to act in your best interests, as opposed to trying to sell you instruments from which they earn commissions. Which brings us to:

Not understanding how they make money

Many financial advisers, including most at the big-name firms, earn commissions based on what they sell. These commissions vary depending on which instruments the company is currently pushing and what gives them, not you, the highest returns. If you even suspect that is who you are talking to, walk away.

Others keep a percent of any growth to your bottom line. These advisers tend to target individuals with a high net worth for obvious reasons. And in a growth economy, they, and in turn, you, do quite well. But ask them what happens if you lose money. In addition to the percent of the growth they collect, they also have a minimum flat fee every month. So, if you make money, they make money. If you lose money, they make money.

You know the drill; walk away

What you are looking for, in addition to everything above, is a fee-only adviser. They work for you and only you. You pay them a flat fee for their advice, expertise, and planning. Note I said fee-only, not fee-based. Don’t fall for that confusing conflict. Fee-based means that they make money in other ways, in addition to your fees, such as the dreaded commission.

A fee-only planner won’t have conflicts of interest like commission-based advisers. And, since they don’t make money from the money you make, that friction is also removed. For instance, the proper advice based on your circumstances may be to sell an investment to pay off an expensive mortgage. But in theory, this may lower your net worth temporarily costing them money. A fee-only planner won’t have that conflict.

Depending on your willingness to research, your financial savvy, and where you are in your economic lifespan, you may or may not need a financial adviser. But if you decide that you do, take the time to research, investigate, and interview potential candidates to find one that is right for you. There is no cookie-cutter best approach, but if you avoid these three mistakes, you can be well on your way to financial security and success.

How am I qualified to give financial advice? Glad you asked; shows you were paying attention.

In 1980, I lived in an $85 a month duplex on the edge of the slums and drove a ’63 Dodge with no brakes.

Today, I am retired with enough net worth to see me through comfortably. I split my time between three luxury condos and can afford to spend my time doing the things I love, photography, writing, and traveling the world with my beautiful bride of 40 years.

And I drive a 5-year-old Toyota.

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