Building a trusting relationship with a financial professional is important because you’ll be sharing information about your assets and income, and you’ll want to feel confident when acting on any advice you receive.
But be wary of becoming too close, says Dennis Notchick, an Investment Advisor and Certified Financial Planner with Safeguard Investment Advisory Group (www.safeguardinvestment.com).
“People often become good friends with a broker who’s not doing a very good job for them,” Notchick says. “Even when they begin to realize they aren’t getting their money’s worth, they can’t bring themselves to break the ties. The personal relationship has come to mean more to them than their bottom line.”
Notchick recalls once when a couple in their 60s came to him to discuss whether there were better options for their money. Based on their financial professional’s advice, they had invested $1 million in variable annuities.
“Variable annuities can be very expensive,” Notchick says. “The fees can range from 3 to 4 percent per year, so I pointed out to the couple that they were being charged exorbitant fees and could reduce $30,000 or more in costs.
“The husband was on board and ready to make a change, but the wife was hesitant. She didn’t want to jeopardize that friendly relationship they had with their broker. They decided to stay where they were, paying over $30,000 in fees each year, just because they want to keep that friendship.”
So what should people do when they want to find an advisor they can trust, but don’t want to go overboard with the relationship?
For starters, Notchick suggests they ask these questions:
• Is the advisor a fiduciary? The fiduciary standard says that the financial professional must always act in a client’s best interest. Many advisors, at least right now, are held to a lesser standard. Their advice only needs to be generally suitable for the client, which allows these professionals to steer clients to investment products that are more profitable for the advisor. Beginning in January 2018, a new U.S. Department of Labor rule will be in full effect and require that all financial professionals meet the fiduciary standard when providing retirement advice. Some brokers call themselves fiduciaries – but how can you tell which hat they are wearing when giving you that advice?
• What licenses does the advisor have? If an advisor only has a securities license, then you will only receive securities-related advice. If an advisor has an insurance license, you will only receive insurance-related advice. Make sure you work with an advisor who understands both worlds and creates a plan based on the client’s philosophy, not someone else’s.
• What’s the advisor’s experience? It’s worth knowing not only how long the advisor has been in the business, but more importantly what kind of training and experience he or she has. For example, Notchick says, those who earn the Certified Financial Planner designation must go through extensive training and pass a rigorous exam, but real world knowledge/experience of all the areas of financial planning are also critical.
“Certainly, it’s important to have an advisor you can trust, but you still want to keep the relationship professional,” Notchick says. “When that relationship becomes more like a friendship, high fees almost always mean the investor will pay the price.”
About Dennis Notchick
Dennis Notchick, CFP is a Registered Investment Advisor Representative and Certified Financial Planner with Safeguard Investment Advisory Group (www.safeguardinvestment.com) in San Diego, Calif. He has nearly a decade of experience as a financial professional, and holds Series 3, 7, and 63 and 65 Securities Licenses and a California Life/Health Insurance License. Notchick has a Bachelor’s degree in business administration from California State University Northridge.