There is bad news and good news when you’re searching for a financial advisor. The bad news is that there is, remarkably, no one singular listing of all the nation’s financial advisors that is suitable for consumer use. I know quite a lot about compiling lists of all the nation’s advisors, as I have built and was the founding CEO of the two largest such firms. The difference was that I built these directories for institutions to use, not consumers.
The baseline data for the institutional use of such a directory comes from a huge volume of regulatory data. This raw data, once compiled and organized, is used by mutual fund companies, technology firms, and recruiters who are looking to sell things to these advisors. The data they care about resides in this raw regulatory data. However, the information a consumer cares about is not in this data. Therefore, these databases that actually include every advisor are nearly useless to consumers. I know this first hand as I tried to market this data to consumers and it failed. My competitors in the institutional market also tried to market it to consumers, and again, no takers. There are a number of commercial directories that are attempting to market to consumers today and fall far short of being useful. They either have regulatory data exclusively, which really tells the consumer nothing of differential value, or they are opt-in directories that have a very small population of advisors, and to make matters worse, the data is not fact-checked. When I have looked at these existing data sources, they are not effective. Perhaps one day someone will come up with a truly useful directory for consumers.
The good news comes in two parts. One, there are several trade associations that list their members freely for consumers to search. Many of the larger firms also have a search function on their websites. Two, most of today’s advisors want to be found via Google searches. At the end of this chapter, I share these sites, combined with Google searches, and explain how to understand and use this two-part tactic to create a list of advisors who may meet your needs. One caveat about the listings and directories is that none of them are perfectly complete. In some cases, the advisor simply does not care to be a part of a directory listing, they do not belong to a trade group, or they don’t pay to be a member of a for-profit network. However, by using both these directories and Google, you will have access to more than enough advisors to create a list and begin the narrowing process to find someone right for you.
When you combine this with chapter 13, on how to how to spot and avoid a bad advisor, and chapter 14, on how to interview advisors, you will be fully prepared to find your perfect financial advisor. This process does require a little time on your part, but the time taken is more than worth the effort.
Asking Your Friends and Family for an Advisor Referral
Nearly all consumers and investors have found their advisors through personal referral in one way or another. You ask your parents, your boss, and your friends who they use. You know or meet someone in a familiar setting such at Rotary meeting, Chamber of Commerce meeting, or house of worship. Your CPA or your attorney has worked with someone for years and has high regard for the advisor and refers to them. There can be a problem with this method of finding an advisor in that acquaintances who you personally trust usually do not fully understand the advisor they are referring you to. They often say, “I have known him for years; he is a terrific guy. I am very happy.” Or “I have been sending my clients to her for years. We really work well together.”
Rarely will you hear in great specificity what exactly this advisor does for a living, his or her specialty, their niche, if they have troubling negative regulatory history, their belief systems in terms of investment philosophy, designations, or work history, all which makes them unique. It’s the very reason I am writing this book: people simply do not understand advisors. Thus, when receiving a referral from others, be open to the possibility that your friend may not be fully aware of the advisor they are referring you to. Make sure you follow the steps in the chapters on spotting a bad advisor and interviewing advisors when evaluating personal referrals.
Before I share the specific process to create your advisor short list, I want to share some additional investor stories, as I find that real life stories are very educational and can help you think more broadly and creatively about who to look for. Most of the investor stories are from complete strangers, people that were sent to me by others. I had no idea what they were going to tell me, and I simply asked them to tell me their financial story, whether it involved an advisor or not. Remember that there are many millions of investors and consumers that have used the hundreds of thousands of financial advisors to help solve their particular issue.
Divorcing Women
Margaret (not her real name) is in her late thirties and went through a personal and financial rollercoaster because of a bad first marriage. Her story, while upsetting, is not unheard of. Her former husband essentially tried to blackmail her into staying in a bad marriage by making subtle threats that her credit would get ruined should they divorce. They jointly owned a house and had a large line of credit based on the equity in the home. As the relationship deteriorated, her husband depleted the entire line of credit for his personal use, and to make matters worse, he got laid off and did not make payments on the loan.
During and after the divorce, he continued to stick her with the bills. The home value plummeted as most did during the 2008 housing crash, so refinancing was not possible, and eventually, Margaret was forced to allow the home to be foreclosed on. Through friends and her own tough experience, Margaret shared with me several lessons that others can benefit from. First, she should have left the marriage earlier. Second, upon noticing the signs her husband was going to use financial coercion, she should have squirreled away money in her own account earlier and in greater amounts. Finally, she is thankful to have always kept a credit card in her name only.
During our conversation, I shared with Margret that there are hundreds of mostly-female advisors who cater to women going through divorce. These advisors not only know the best money practices for divorcing women, but also become an emotional support system. They have seen and helped hundreds of others go through this traumatic period. Margret wished she was aware of these types of advisors when she was going through her terrible time. Happily, Margaret is now remarried to a terrific guy who is financially responsible. She shared that while it sounded trite, the many people who told her it would be better in the end, were right.
Paying for College
Amrinder Babbra is the co-founder of the nonprofit, nonpartisan International Behavioral Research Institute based in Chicago, Illinois. He received his master’s degree in behavior analysis and therapy, and is currently pursuing a PhD in the same course of study at the Rehabilitation Institute at Southern Illinois University. In 1990, he was born in a small village near Hoshiarpur, India. Amrinder’s family came to the U.S when he was two. His mother was the primary breadwinner, as his father had a chronic condition that prevented him from working. Despite her difficulty with English, Amrinder’s mother quickly exhibited her intellect in many ways, one of which was finances. In this regard, she was an excellent role model for Amrinder and his sister. When he was twelve, she taught them about managing a checkbook, internet banking, and credit cards. She purchased life insurance for her son and daughter when they were fifteen and sixteen, a highly unusual but very savvy move. She purchased a home and navigated the financial crisis of 2008 successfully and—unlike many others—came out unscathed presumably because, among other things, she understood the potential consequences of her mortgage agreement.
One of the drivers for Amrinder to learn serious financial responsibility was the unusual and, one would assume, emotionally stressful situation of his father being unable to work. He had to learn finances out of necessity; it was not by choice. By the time he got to college, he was much more adept at managing his personal finances than most of his peers. He knew the dangers of credit card debt and knew how to make the most of better offers and balance transfer tactics. In school, his interest in finance was fueled by interactions with his professors, and also by his interest in the application of behavior analysis to personal finance.
Despite all the excellent financial training he received from his mother and from his own personal interest, he had a financial blind spot when it came to college tuition. He was aware of advisors that catered to the need of college funding. However, due to a combination of mistrust and the lack of availability at the time, he did not hire one. He believes the calculus of college costs versus anticipated earnings was not considered, partly due to cultural pressure and stigmas in the Indian culture. Going to a four-year university is something that was assumed and expected in his community.
In hindsight, he still questions the debt and school decisions that stem from these pervasive social stigmas. Due to these experiences, he now believes others should weigh more seriously the alternatives of free local schools, or an associate degree to start with the possibility transferring to a four-year school. Thankfully, Amrinder has been able to refinance his school debt through the Common Bond organization for a lower monthly expense. In retrospect, had he been able to better anticipate these setbacks, he would have stepped out of his comfort zone and sought out a financial advisor that catered to college funding to give a different perspective and weigh the options.
Amrinder has a deep, passionate interest in human behavior, because at the crux of poor financial decisions is individual behavior, which is why he is sharing his personal experience. During our conversation, he was surprised to learn that there were non-profit organizations that gave financial advice for free to those in need. This was fascinating due to his incredibly thorough research into personal finance. He shared his personal story in the hopes of helping others cope with, weigh the costs and benefits of, and ultimately, make an educated and informed decision on education. Amrinder hopes that by sharing his personal experience he can help an entirely different set of people.
Consolidation of Retirement Accounts
Marie has worked for over twenty years since graduating from college. She contributed to her past employers’ 401(k) accounts consistently but never had an advisor during her working career. In her forties, she married and had children and started to think more seriously about retirement. She had many IRAs and 401ks from multiple employers and investment firms, but had no idea where to start.
She has a friend who is knowledgeable about investments and financial advice and he recommended she get an hourly or flat-fee financial planner to look at her current investments and make sense of them. He provided her with a short list of hourly financial planners to contact. She contacted them and chose the one that she felt most comfortable with based on how their initial phone conversation went. The planner charges by the hour and is fee-only, meaning she receives no compensation from any fund company. The planner wanted to meet in person and sent a list of things Marie would need to bring to the meeting.
At the meeting, the planner reviewed all of Marie’s statements and accounts and asked about her desires for the future. There were two main messages the planner gave Marie. First, she needed to save much more money each year to ensure a comfortable retirement. Second, she needed to consolidate all the disparate accounts into two retirement accounts, a Roth IRA and a Traditional IRA, and move all the disparate funds into one lower cost target date fund. The new fund is sponsored by a very well-known large fund company that has many low cost, well performing funds. However, Marie was not given a clear indication from the planner on the exact annual cost savings the new fund would provide, versus the former funds she has.
The planner gave instructions on exactly how to open the two new accounts and transfer the funds from the current mutual funds into the new fund. The instructions were sent via email and, in retrospect, were not well organized and not completely clear. It took Marie a number of hours and several weeks to get all the monies transferred and turned out to be a fairly frustrating process, as each fund company had slightly different procedures for transferring money out of their companies. For some firms, the funds would be sent directly to the new mutual fund company. For others, they would only send the check to Marie, who in turn had to send that check to the new fund company.
After a few weeks, the entire process was completed. Marie spent three hundred dollars for two hours of the planner’s time and now has just two accounts to focus on, with the same fund company. She is relieved that she has consolidated her accounts and now her focus is to work on saving more.
Semi Self-Directed
Ron (real first name, his last name he preferred to not share) wrote to me to share his experiences with financial advisors. The following is almost verbatim, aside from some non-material editing:
“I have a financial advisor and I trust him. I’ve had other advisors through the years. Most were good, but nothing more. I had one that was excellent and then there’s my current guy who is beyond excellent. Through the years, I’ve learned quite a bit about investing and I often steer my portfolio according to my market anticipations. However, when I was young, I was very mistrustful of others. It was only with experience and age that I overcame my prejudice against financial advisors. Part of my turnaround might be due to my own fortunes—once you pass a certain threshold of wealth there’s no avoiding some form of financial advice.
“My first exposure to a financial advisor was back in the late ‘70s. My parents were investing in the money market and getting really good returns. I only remember the advisor as an elderly man and my father insisting that his investment money should be ‘safe.’ Once the CD boom ended the money got parked into a conservative tax-free fund that never generated much return. The advisor passed away and my parents never moved the money from the fund. But they complained about the lack of return and how you couldn’t trust these financial guys. (Looking back at it now, I realize they got exactly what they asked for: something very safe.)
“But that was my parents’ experience, not mine. I was in my thirties and was my own advisor. I had a small nest egg but, due to my parents’ experience, I distrusted financial advisors. I lived and worked in New York City at the time. I attempted to learn about investing, but had little time for it. I bit the bullet and contacted an advisor. He was young and aggressive enough to make me doubt his advice. I suppose I feared he would steal my money.
“I knew I wanted to buy stock in a company large enough not to go bust and small enough to get a short-term profit. I did some reading about a sugar refiner called “Sucrest” (now known as Ingredient Technology Corporation). They had signed a long-term contract with some nation in the Caribbean and were in the process of negotiating long-term contracts with a cane supplier in the Philippines. Some Sucrest historical info mentioned bad profits due to a Caribbean hurricane unexpectedly increasing the price of raw cane. I reasoned that the chances of a Caribbean hurricane and a Philippine typhoon occurring in the same year were remote and I liked the idea of the company paying a steady price for raw cane. So, I decided to go all-in on Sucrest and watched it rise from ten to twenty over a year. It then started a slow decline, dipping as low as twelve but then rebounding. I sold at 14 making a 40 percent profit in two years, which was fine with me. That’s how I managed to buy my first house at age thirty.
“In 1990 I was contacted by a financial advisor from Eaton Vance. He was pushing Oracle as an investment and used some shady math to prove his point. (I have a background in engineering so I can spot bad math when I see it.) I said no thank you. Little did I know that this young man, despite the bad math, had actually given me excellent advice. Oracle stock was just beginning a steady rise that lasted a decade. But, not knowing the future, I decided to invest in CDs. (A poor investment choice at the time.)
“I had no financial advisor until after I retired. By then my parents had died and I sold their house. I needed to do something with the money. In 2004 a local financial advisor from Edward Jones knocked on my door. My wife and I liked him, so we decided to invest some money with him. The returns were acceptable so we invested some more. Eventually we put almost all of our money in. The first advisor got a promotion and moved to NYC. We were assigned a new advisor and my wife and I were worried. The new guy wanted to restructure our investments. He wanted us more global and less USA-based.
“Meanwhile I had been reading the monthly Edward Jones magazine and I had started watching Jim Cramer on TV. I had my own Scottrade account and was doing slightly better than the Edward Jones account. I fancied that I now ‘understood’ the market. (Deluded fool!) I found myself agreeing with the new advisor’s investment ideas. He recommended diversifying my portfolio, becoming more international. In fact I overloaded my account with international companies and my advisor thought this as wise. This strategy paid off and the returns became stunning. He found some really good bonds for me too. After several years he rebalanced me from mostly international to more U.S.-based and, once again, the returns were great. Lately he’s taken a fair amount of money out of the stock market and put it into CDs and bonds.
“I’m probably not a typical investor. My relationship with my advisor is this: I tend to be too aggressive and he tempers my choices. We study the account every year and, if the investments get too skewed in any particular direction, we re-balance. If the market gets very volatile my advisor always calls. I’m very happy with him. As I get older I’m less inclined to push my account towards my opinions and more receptive to my advisor’s advice.”
Start Your Search
Before you search for your first financial advisor, or a new financial advisor, you must ask yourself why you believe you need a financial advisor in the first place. If you have no idea, but feel like getting help is smart, your advisor search is actually the easiest, so read on.
For everyone else, you should write down what your issue is and be as specific as possible. It could be saving for retirement, help managing a portfolio of stocks, or paying for your children’s college. Whatever your need is, simply write it down so it is documented. Save it, as you’ll need to reflect on it later.
As you will see, I often suggest adding your city and state to the search criteria. The reason for this is all else being equal, it is preferable to have someone physically close to you. There are many dimensions to this concept of locality, but to begin with, your perfect financial advisor may very well be halfway across the world from you and all will be perfectly fine.
Still, having an advisor close to you is preferable for a number of reasons. First, being able to meet your advisor, look in their eyes, see how they dress, and see their office, is valuable information if you know how to process it. In the chapter on interviewing advisors, I go into all this. Also, seeing your advisor periodically through the year can be very informative. Seeing them and their conduct in the community, their family, and other aspects of their life is helpful. Be aware, however, that the slickest con men have used community to their advantage to unsuspecting victims. This I also show in the chapter on how to spot a bad advisor.
On the flip side, your advisor seeing you regularly can help the advisor deliver great financial advice over the course of time. A great advisor will politely nudge you to stop procrastinating on what action you may have not implemented. Your advisor bumping into you at the pool store seeing you purchase chlorine can be a big deal if your advisor was unaware that you just installed a new built-in pool and you never changed your homeowner’s or personal liability policy, not to mention to higher taxes in the coming year that may impact your plan.
When I write, “all else being equal,” it’s really a generalization…because nothing is ever equal in life or in finding an advisor. But the tiebreaker in picking your perfect advisor could be locality, so it’s a factor.
If you are comfortable with it, I would use an Excel spreadsheet to create your list. If not, a lined paper pad will suffice. Give yourself room under each entry to make notes.
I Have No Idea How to ImproveMy Financial Life
If you do not know how to begin to improve your financial life, then you should get a financial plan. This is the best thing you can do for yourself, as you will assuredly learn something that you never even knew to ask yourself. To get a financial plan, you need a financial planner. There are a number of sources to get a list of financial planners. There is overlap, as most planners are CFPs, but the other organizations members focus on a certain niche of client or business practice.
CFP Board: This is the certification board of the CFP designation with over seventy thousand planners holding the designation. http://www.letsmakeaplan.org
NAPFA: All NAPFA members have the CFP designation, however NAPFA members are fee-only, meaning they do not believe in receiving any form of commission as part of their compensation. https://www.napfa.org/find-an-advisor
Garrett Planning Network: Garrett members are fee-only and serve middle market clients with hourly planning. https://www.garrettplanningnetwork.com
XY Planning Network: XY members cater to younger clients, are fee-only, and are CFPs. https://www.xyplanningnetwork.com/consumer/find-advisor/
I Have an Investment Portfolio to Manage, But No Other Needs
There is no consumer-focused inclusive directory to search for advisors that focus only on managing investment portfolios. Many, but not all, financial planners also manage portfolios. Investment management is a subset of financial planning, and the planning sites mentioned before can be a source.
Additional sources for advisors that manage money are these two organizations:
- CFA Institute
https://www.cfainstitute.org/community/membership/directory/ - Investments & Wealth Institute
https://investmentsandwealth.org/investors
In addition, there are many advisors that have been managing money for years and for one reason or another do not possess a designation. Google the terms “Asset Management” or “Investment Management” and your city and state, and look at the first three pages of results. It is important to get at least ten advisors in your city from all three sources, as some of them may focus on institutional clients, and not individuals. Moreover, some may have account minimums that do not match your investable asset level.
I Need Help with Investments and Other Specific Issues
When you need help with investing and other financial issues, the advisors that provide both services are called wealth managers. Please note this term is industry jargon, it is not a regulated term. There are some certifications that incorporate the term. Financial planners that also manage money are should be included in your search, as financial planners that also manage money are considered wealth managers. You should also google the term “Wealth Management” and your city and state, which will result in advisors that can be included on your initial list.
I Have a Very Specific Issue or Goal
Financial planners from the listings mentioned before should be included; also, Googling that term plus your city and state will give you potential advisors to add to your list. For example, if you are a widow or know a widow who needs an advisor, then search the term “financial advisor widows (your city, your state)” and on the first three pages, advisors will come up that share those key words.