Finding the Right Financial Advisor – Episode 119

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[00:01] Welcome to the Prosperity Podcast, fresh, alternative personal finance talk for independent thinkers who prosper outside of Wall Street. Here’s your host, bestselling author, Kim D.H. Butler and No BS Money Guy, Todd Strobel. Hey everybody, welcome back to the Prosperity Podcast. This is No BS Money Guy, Todd Strobel, got bestselling financial author Kim Butler in the house with us today, my co-host and also the president of Partners for Prosperity. And today she’s going to specifically address how to choose a financial advisor. And boy, this is a confusing subject because it’s even unclear sometimes who can call themselves a financial advisor. That is very true. And there are times that a financial advisor can handle some specific products and not

[00:51] others. And you think if the term financial advisor was used, they would all be the same, but they’re not. So let’s tackle this. We were just talking in our previous podcast about choosing a life insurance agent. So if you’re curious about that, back up one and grab it. And the reason I bring that up is that some financial advisors are good life insurance agents and are able to help their clients with life insurance and understanding the differences of the different types and actually purchasing the life insurance, etc. Whereas other financial advisors don’t know anything about life insurance and have not been taught how it works, what it does, how to use it. I mean, they may have some generic knowledge, but they’re not going to be able to help

[01:35] you actually implement a life insurance policy. So like Todd so wisely said about the life insurance agent, you really want to start with the philosophy and or the principles of that financial advisor. And even before that, you may want to be looking at some of the areas of licensing. So just asking the question, you might be able to figure it out from reading their material. Do they operate off principles? Do they talk about those principles? Do they have values and a philosophy that they put out there for you to read and get specific on? Or is their website and their marketing material, etc. all the same generic stuff about how long they’ve been in business and how many various funds they manage or

[02:25] operate or what dollars they have under management or what have you. So getting clear on the principles of philosophy first, and then there’s some good knowledge that I think we can share about the licensing. So the first is the series 65. I’ll admit that I’m very biased towards this, but a series 65 is a license for giving advice. It’s not a securities license. So a lot of stockbrokers and as an example, we’re going to have securities licenses, a series six, a series seven, a series 63, a series seven. Yes, thank you. That license enables them to help you buy and sell stocks, bonds and mutual funds. And depending on your opinion on that, that can be either fine or not. But a series 65 is for advice.

[03:23] Now, what gets confusing and Tony Robbins has recently written a lot about this is that the 65 can sometimes be an independent registered investment advisory firm relationship or it can be not independent. In other words, where the 65 is held inside something that’s called a broker slash dealer. And that’s a very odd word for a company that focuses on assets and or management again, specifically in the stocks, bonds, mutual funds arena. So we recommend that you seek out an independent financial advisor that has a series 65, meaning the ability to provide advice and that 65 is not affiliated with a broker dealer, but is instead at an independent registered investment advisory firm. So that was a big mouthful.

[04:21] What kinds of questions do you think we’ve got on this? Well, I think it would just just basically if you could just touch on the fiduciary standard, not go too deep on it. But I think that’s what makes the 65 significant. You are correct. So the fiduciary standard and there’s been a lot of talk in the press about this, and I pity the client that is trying to understand this because I’m not sure us advisors understand it. But the Department of Labor DOL rule has recently put forth some confusing information about the fiduciary platform. And what I think is easiest and you’re right, I’ll keep it short because we do have some other podcasts and blog posts on this subject. But what the fiduciary platform provides is the requirement that an advisor act

[05:11] in your, the client’s best interest, regardless of what products they may sell. And the alternative to that is called a suitability standard. And the suitability standard says that they can sell you anything as long as you are, quote, suitable for it. And most financial advisors, and we could even mix in the term financial planners, use a suitability questionnaire to determine your suitability. And this is also sometimes called a risk tolerance questionnaire. And frankly, we think they’re pretty laughable. We’ve done some podcasts on them as well. So the fiduciary platform is what you’re looking for. Anybody that operates from the fiduciary platform must, again, by law, provide for you the advice that is the product that’s best for you,

[06:06] regardless of whether or not they sell it. Awesome. I think that’s very important. So we’ve got, in my mind, it’s easiest to picture a pyramid. So maybe towards the bottom, we’ve got the philosophy and the core principles of the advisor. And then next, we move up to strategy. And then finally, the last and probably least important question is product. And I think most people have it flipped upside down. And we spend so much time talking about product that we end up with a bad strategy or almost like climbing up a ladder to the wrong building. Absolutely. And as our listeners know, we’re big believers that you’ve got to have the products. I mean, you can’t just put the money in the mattress. But your strategy with the products is equally important.

[06:53] And I would separate those out on your pyramid. And I love that you started with the base or the foundation, the biggest part being the philosophy and the principles that that financial advisor is espousing. And I think you want them to be black and white. I don’t think you want gray, unclear, fuzzy principles or philosophies. So if you’re out there interviewing a financial advisor, you can ask some pretty blunt questions. What’s your philosophy? Do you operate under a set of principles? Do you have the series 65? Is it independent or is it not? Now, I will readily admit this whole area 65 arena is not new, but it has really come to the forefront of late. And there are a lot of advisors out there that do a fabulous job.

[07:43] Though they don’t have the series 65, they truly do operate as a fiduciary. And I think over the next 10 years or so, we will see more and more people come into the profession and adopt the 65, even if they’re already in the profession and be able to stand firmly on that platform and to say that I charge a fee for advice because that’s an additional thing that a series 65 can do. Whereas right now, most people are charging fees for assets under management only. Now, having the 65 doesn’t require you to charge a fee. We certainly don’t charge a fee to all of our clients. But I think it’s very important that if a client truly wants advice that they should pay for that advice and it should be completely disconnected

[08:36] from the products that they are going to purchase. And again, I’ll restate the products need to be purchased. And not every client wants a holistic process. Not every client wants advice. Some clients already know what they want. And so they can go straight to the product. They can purchase the product and go on down the road. Whereas others truly want a holistic process. They truly want separate advice and they should pay for that and be willing to have it be separate and be willing to pay for it, have skin in the game from the client side and the advisor side. And I think over the next 10 years, we will see more and more people operating on a separate platform for advice that of the series 65 with a

[09:25] process that they can charge a fee for. And then the client gets to choose. They get to choose whether they pay a fee and have advice or whether they just want to buy product and go on down the road. I think one of the most important things paying someone just for financial advice does is it teaches you how to separate marketing from fact. Because we as a financial industry have disguised a lot of marketing material as fact and put it out there. Basically teaching people that there’s only a couple options out there. You need to be in the stock market and fully vested in your 401k. And that’s the only choices that there are. And the truth of the matter is that such a small part of the investment world.

[10:11] But wouldn’t you agree that most people think that that’s everything? Absolutely. When you hear the term financial advisor or financial planner, you often associate that directly with the stock market. And I like the term financial advisor for myself because I do provide the advice. And I don’t like the term financial planner for myself because I think the idea of a financial plan is a very false sense of peace of mind. And we’ve actually written a book on this subject. It’s called Financial Planning Has Failed. And that’s available at partners, the number four, prosperity.com slash ebook. And it talks about the history of financial planning. And it talks a little bit about why I chose to let my certified financial

[10:59] planner designation go. And there are good people that have that designation. So it was a personal and a professional choice that, of course, isn’t right for everybody. But I think going forward, we’re going to see brand new people coming into the industry and getting two licenses and two only. And that is a life insurance license and a Series 65. I think more and more people are becoming disillusioned with the stock market, and they’re not going to want as clients to be involved in it. And more and more advisors are getting disillusioned with the stock market. And they’re not going to want the Series 6 and the Series 63 and the Series 66 is kind of one of those other middle ones and the Series 7.

[11:43] Instead, they’re going to want to be dealing with alternative investments for investing and good old whole life insurance as a place to store cash. Super. And I will mention that Kim consistently is able to get her clients double digit rates of return with very little risk. And I don’t know of too many people out there who can consistently do that the way Kim has. So would definitely encourage questions on if you’re in a situation where you do have some money to invest, it might be a great conversation for you. Fabulous. So grab the ebook, partners, number four, prosperity.com slash ebook. There’s an audio version as well and start your education. That’s probably if people are looking to invest, that’s the first thing is a

[12:30] little bit of education, which is mostly reading and listening and learning and being open minded. And then from there, get your dollars working hard for you. Yep. Best investment of your time and resources is yourself. Awesome. Awesome. Well, thanks so much again to Kim Butler. Thanks to our listeners. This is no BS money guy, Todd Sturble. We’ll see you all again on the next podcast. Thank you for listening to the Prosperity podcast. To take control of your money and have it work for you. Visit us at partners for prosperity dot com. If you liked this episode, make sure you subscribe and leave a review.