Finding someone you can trust with your money can be tricky. Go online and search “financial advisor near me” and you’ll get dozens of results. The search results will all seem to have a common theme: financial advisor, wealth management, etc., but as a consumer what do all these terms really mean and how can you differentiate one from the other?
Did you know that anyone can hold themselves out as a financial advisor? That can be a scary thought when you begin to look for someone to help you with your life savings. Hopefully the following story about ‘suit shopping’ will help you to remember the differences between the options available to you within the finance industry.
John has an important event coming up that he’d like to buy a suit for. He’s never purchased a suit so he calls his sister Jill to ask where he should start. Jill first tells John that there’s a lot of information and videos on the internet about how he could sew a suit himself. He only needs to go to the store, buy some fabric, and figure out his measurements. John tries this route, only to discover that he does not have a talent working with textiles. He’s left with random pieces of fabric that don’t work for him and is frustrated from wasting time and money.
Do-it-yourself (DIY): Maybe you feel the same way about managing your money: you see others do it and are self-proclaimed experts, why not you too? Like John DIY’ing his suit, you may decide to DIY your investments. This may turn out okay for you or maybe you end up like John. Unsure of your measurements (i.e. goals, risk tolerance, overall market knowledge), you piece a portfolio together. Before you know it, you are several years into investing, regretting your decisions and holding random investments that don’t fit.
After John’s failed suit making debacle, his sister suggests that he head to a department store to see if a salesman can help him find a suit. He goes to a name brand store, finds a salesman whose job is to place John in a suit that he can wear. He does just that, but the salesman doesn’t take the time to see if the suit fits John well. The sleeves are too long, his buttons are too tight, and it is in a color that John doesn’t care for. Nonetheless, the suit salesman has done his job and still gets a commission for the sale.
Broker/Financial Advisor: Relate John’s department store visit to that of a broker/financial advisor. Similar to a department store, a broker’s business may have name recognition and you may see the same business in most major towns you travel through. Similar to that of the store salesman, a broker’s job is to make sure that your investments ‘fit’ or are suitable for someone your age. This means that while decisions made may not be specifically best for you, a broker is doing their job. Also similar to that of the suit salesman, they will also make a commission for each ‘sale’ they make.
When John goes to his sister’s house to show her his purchase, Jill regrets her decision to send him to the department store. The suit John bought simply won’t work. Jill sends John to a tailor to make John a custom suit. The tailor takes John’s measurements, asks his preferences on fabrics and colors, and asks him to come back once the job is complete for final changes. When John and Jill return, the suit fits John perfectly and both are satisfied.
CERTIFIED FINANCIAL PLANNER™/Fiduciary: Just as the tailor in John’s story, a CERTIFIED FINANCIAL PLANNER™ professional must provide work that is custom to a particular client; not their neighbor, friend, or stranger on the street. A fiduciary is required by law to act in accordance with your best interest, not their own. Decisions are custom to a client and are not driven by sales or other potential conflicts of interests.
Whether it be a suit or investments, everyone’s needs and preferences are different. You may be confident in your abilities of some areas of your life, but also accept that there are others you may need to seek an expert’s opinion. If you find yourself shopping for someone to manage your money, I encourage you to ask yourself, ‘Do I have the right suit maker?’
Published in the Victoria Advocate
Sara Potts is a CFP® Professional and Operations Manager with KMH Wealth Management, LLC