Do You Really Need a Financial Advisor? – Choosing a Financial Advisor in Tucson, AZ – Part 4

Do you really need a Financial Advisor? In this guide we’ll help you find out when and when not to start looking.

You’re about to retire and your 401(k) and other investments have grown over the years to where you think you’ll have enough to retire comfortably.

You’ve talked to a few friends who have retired recently and they’re telling you great things about the financial advisors they hired to help them manage their funds in retirement.

But one question keeps, going through your mind, “Do I really need a financial advisor?”

Watch this to find out.

I will be the first to tell you that not everyone needs a financial advisor and that it really depends on your situation.

Let me start with a few examples.

I recently met a couple who had built a nice bond ladder and were simply living off the interest. There weren’t any moving parts, and nothing needed to be changed. Why bother paying an advisor?

It’s hard to generalize, but I will try to give you some useful examples of people who probably don’t need an advisor.

Reason 1 – When your main asset is a pension.

Probably the most obvious couple who didn’t need an advisor was a pair of retired teachers from the Midwest.

They had very little in their retirement accounts but had great pensions. With their guaranteed monthly incomes, there was no way they were going to run out of money. And as a bonus, they could even handle costs associated with a health issue purely from their pension income alone.

Their accounts weren’t of a significant size for them to need a manager so we give them some free advice and sent them on their way.

Reason 2 – The Passionate Investor

We have run into countless people who really have a passion for managing their own money.

They come in because a friend or a relative tells them they have to, but they truly enjoy doing the research, staying up with current financial markets and trends and spending the time to learn what they need to know and implement every day, week or month. For the most part these people don’t need a financial advisor.

There are two important exceptions here.

The first one is that you need to be very careful where you do your research, and don’t just stick to one source. Clients are constantly concerned and sending us doom and gloom articles from a “prominent financial expert” who was fined by the SEC for defrauding and misleading investors.

In my opinion, he and his firm haven’t changed their ways, so you really have to make sure you’re getting advice from the right source.

The second exception here is a tougher one to recognize and overcome.

That is emotion.

When faced by a crisis, will you make the wrong move with your finances?

The tough part is most people don’t or can’t know the answer to that one in advance. Another financial crisis will hit, and you might have been still working the last time one hit. Your mindset will be different ten years into retirement than when you were working. Before, you could simply delay retirement if you made the wrong call. Once you’re retired for ten years, it may not be possible to go back to work if your investments fall apart.

That’s why it’s critical you can control your emotions and that of your spouse when dealing with these potentially life-altering decisions.

Reason 3 – The Wealthy

I already talked about the people with a big pension and little assets, but oddly enough, you can also argue that people with huge amounts of assets don’t need a financial advisor.

If you have enough saved and a modest enough lifestyle that there’s no possible way you could run out of money, then a financial advisor is not necessary.

Even if you’re so bad at making investment choices that your portfolio loses money every year in retirement, you could be rich enough that it simply doesn’t matter. Of course, your heirs might prefer it if you hire a competent advisor but at that point, it really comes down to what you value most. If you want to make sure you leave money to your children, then it can definitely be a positive to get a second opinion.

If you do all the right research, find yourself to be qualified to manage your income stream in retirement, and feel confident that you can go it alone, make sure to take a step back and ask yourself this question annually.

Am I prepared for things changing?

We actually have a retired Certified Financial Planner as a client because she recognizes that her knowledge is out of date since she retired and she can’t keep up with current markets and investment products.

In addition as some people age, their interest and ability to manage their finances might dwindle. Don’t do your family the disservice of not doing this analysis every year.

So, do you need an advisor?

In the end it really comes down to your skill level, how important your wealth is for your income, and your history controlling your emotions.

If you can manage all the above without a problem then you probably don’t need one.

If you don’t feel confident, have issues making decisions, and the market keeps you up at night and you want a guide. That’s when an Advisor really matters most.

And if you need to talk to someone who will give you an honest opinion? Then give us a call. That’s what being a fiduciary is all about. Putting your interests first no matter the situation.

Until next time,
Alex and Robin.

In the next installment in “Choosing the Right Financial Advisor for You,” we cover the advisors you should avoid and why we are so passionate about this.

See you there.

Understanding Designations – Choosing a Financial Advisor in Tucson, AZ – Part 2

It’s time to understand what those letters at the end of an advisors name really mean and if they matter…

Would you blindly trust just anyone to operate on you?

I sure wouldn’t.

If I was going under the knife I’d want to check out the team who had my life in their hands.

  • I’d want to know if they were qualified?
  • Did they have a history of success?
  • Is this even their area of expertise?

I might be fearful before going under, but the last thing I would want to worry about is whether or not I trusted their skills…

Can you imagine getting put under with that on your mind? No thanks!

The test I took that allows me to legally give financial advice took me about 3 hours of study to be able to pass. That’s it!

Just like that, a few weeks out of college, with no experience, I was able to call myself a financial advisor.

It takes more to become a barber!

So how do you know that a financial advisor even knows more than you?

This is where what I call “alphabet soup” comes in. There are many non-required courses and tests that professionals can take to earn designations and learn more about financial topics. These designations show that they are serious about their career. Not everyone takes them, but those that do, are at proving and enhancing their skills.

There is a popular Ad that came out recently. You can see it here.

It’s the one where the CFP® board has a DJ present financial plans to people to see if they would let him manage their financial life. And guess what? People do!

Yes, you heard me right, a DJ.

The tagline at the end goes “If they’re not a CFP® pro, you just don’t know…”

That’s why we made this video. To help you understand that it’s your responsibility to do research on the advisor’s you’re interviewing to see their history and qualifications.

We’ve all heard the horror stories from friends and coworkers about terrible financial decisions they or people they know have. What’s worse, many were led to those decisions by financial “professionals” whose advice they trusted and followed.

That’s why you need to do your research and make sure they’re qualified.

Though it isn’t always that easy.

It can be difficult to find good insight into someone’s qualifications without knowing where to go.

For instance, at The American College you can see just a few of the many different designations available.

No wonder it’s confusing.

To make things worse, not all designations are equally respected, and they certainly don’t mean the same thing.

Open Book Testing? Really?

I recall a designation I pursued over ten years ago that was focused on working with people in retirement.

If you read the study materials and prepared for the test like you were supposed to, there was good knowledge to be gained that would help you make better decisions for your clients. Unfortunately, it turned out that the testing procedure wasn’t as stringent as it should have been and many people were not studying at all and in fact were taking the test “open book.” They just looked up the answers as they took the test without actually learning anything.

While I thought that designation was in fact useful for the knowledge I gained, the people who took the test open book had as much right to use the designation as I did, but without having the underlying knowledge. That designation was eventually discredited, and I don’t believe it exists anymore.

Designations to Look For

Of the more common ones are the CFP® or Certified Financial Planner, the CFA® or Chartered Financial Analyst, and the CLU® or Chartered Life Underwriter.

But what does that mean? As I said before, not all designations are created equal!

For instance, the Certified Financial Planner mark requires a bachelor’s degree, college level financial planning specific coursework, and a 6-hour long exam. It also carries an experience requirement of either 4,000 hours of apprenticeship or 6,000 hours of professional experience related to the financial planning process. That’s a pretty hefty requirement no matter how you look at it.

The CFA® or Chartered Financial Analyst is a globally respected designation that requires a bachelor’s degree, 4 years of financial experience, and 3 tests that require over 300 hours of study each. In addition, the first test is only offered in June or December, and the second and third ones are only offered in June. It takes a commitment of several years after college to earn this designation.

But let’s also look at the course explanations.

The CLU® is all about:

“Protect clients, their families, and their business with the premier designation for insurance professionals”

Versus what it says on the CFP® Board’s site:

“The CFP® Board Center for Financial Planning seeks to create a more diverse and sustainable financial planning profession so that every American has access to competent and ethical financial planning advice.”

One’s about insurance, the other about financial planning.

Yet both will often call themselves financial advisors…

That’s why we create blog posts and videos like the following: “Should you hate annuities or love them.” We want people to understand the difference between insurance focused “advisors” and professionals focused on financial planning.

Does that mean they aren’t qualified? Not necessarily. But to us it’s synonymous with the “Law of the Instrument” by Abraham Maslow.

If all you have is a hammer, everything looks like a nail…

Insurance commissions are often much larger than those on other investments… what do you think they will push?

But I digress, in my opinion, I would argue that in most cases, any designation is better than none.

But it’s time to do your research, know your advisor’s history, and not just hire the first one you meet.

Look around, meet many, and choose the right one for you.

In the next installment in “Choosing the Right Financial Advisor for You,” we cover some top questions you can ask potential advisors that will help you understand their business model and philosophy in detail.