Happy Day to you. This is Ken Kaufman CFO and I am thrilled you’re here for episode number 20. Wow. That means 20 weeks in a row I’ve published a podcast episode. This is definitely a first and it feels like a milestone. I tried to schedule my content so that those who subscribe will receive each new episode first thing on Monday morning of each week. This has been a journey and definitely a learning experience for me. And I’m glad and thankful you’ve chosen to be a part of it.
One of my favorite outcomes of this that I didn’t expect is some of the interactions that I’ve had with some of you. Many have actually reached out and requested the free Google Sheet that I offered many episodes back to help track net worth. If you haven’t gotten around to it, and you still want to get one just send me a quick email at Ken at net worth hacks. com, and I will forward you a link to the Google Sheet then you can make a copy of it, save it to your own private drive and use it how you please I hope you’ll fill it out. And I hope you updated at least annually.
Also some listeners have reached out and asked very insightful questions and today’s episode is dedicated to answering one of those questions.
Here is what one listener asked: I wonder if you could plan to do an episode in the future on how to find a good financial advisor, what to look for how to reach out, and what the relationship would look like. So I put some thought into this. And obviously, this is a great topic, I’m sure many have struggled with this and been through the process of either considering hiring an advisor, or maybe they have hired an advisor or they’re in the process of interviewing a potential advisors. And there’s definitely a lot out there. And that’s not a bad thing.
But it can give a great opportunity for us to find an advisor that could be a great fit for us. So I had an experience interacting with my nephew this last week that I think really comes down to and applies to what is the most important attribute that you should be looking for in a financial advisor. I was discussing with this nephew who is about to graduate with an undergraduate degree in one of the sciences, and he was telling me about some experiences, internships and some different things he’s done using the things he’s learned and building on them, and how much he really enjoys it.
I was asking him what he plans to do once he’s finished with school, and he talked about a master’s degree, maybe working for a little while and trying some different things out. You know, like most people, he’s in the process of iterating, and learning what he likes, what his passion is, and where he wants to spend his time. He doesn’t have a ton of experience to be able to make the best decision, at least from a hindsight perspective of lots and lots of experience. And so, he said that he’s been asking lots of people for advice. His main decision is this – should he go straight to a master’s degree or should he worked for a little while.
He started to tell me about the different professors that he has in school, and how they have given him different thoughts and different recommendations and different advice. I listened to all of that, which a lot of the advice conflicted anyway. And I said, so do you plan on being a college professor?
His reaction shocked me. He said, “No, absolutely not. I don’t see ever doing that. I’d rather be out working doing these types of things.” And he described the different types of things he likes to do and said being a professor wasn’t something that really appealed to him at all. And so then I just followed up with this question right after: If you don’t want to be a college professor, why in the world are you taking advice from them?
A little light bulb went on for him and he went on and he said, “Oh, yeah, you should never take advice from someone you wouldn’t trade places with.” And that turned the light bulb on for me, and I mentioned that’s a great quote and I want to write that down. So he gave it to me. And just in this interaction he had this aha moment of why in the world am I taking advice from people who I wouldn’t trade places with; I don’t like the career that they chose and the direction they went. And so I probably need to broaden my horizons and get advice from some other people who possibly are further down the road than I am in the types of things that I’m interested in doing from a career perspective. And again, nothing wrong with being a college professor, nothing wrong with any of that. That’s just not for my nephew. So I googled and it turns out that this quote is actually attributed to Kelly Clarkson – never take advice from someone you wouldn’t trade places with. And the more I thought about it, the more I realized, this is the absolute most important thing to consider when you’re hiring a financial advisor.
No reason to take advice from somebody that when you look at them, and you see their life or you understand what they’re about, and how they function and operate, and what’s important to them, there’s no reason why you should be taking advice from them, and I think that’s a great gut check. If you’re going to be talking to potential financial advisors, and getting advice from them, and having them direct a lot of and give advice on a lot of the financial affairs of your life, possibly throughout your life, depending on how long the relationship goes. So I thought about this really into context.
One of them is I think it could be really, really important that they are ahead of you. We would only really want to trade places with somebody, you know, not that’s behind where we’re at. Probably not even a parallel swap or an equal swap. You really would want to try to trade up if you are going to be trading places with someone.
So as I thought about this, I thought, Okay, great. So does that mean that somebody who hires a financial advisor, that means they should have more money than I do, or they should…? And I started to try to place that. What I realized is the most important, the most critical is – it’s actually someone who has similar values to you. Somebody who has walked a mile in your shoes to some degree or had similar experiences, to the extent that they can have empathy for how you approach finances, for what money represents to you. And they are down the road in the sense that they’ve experienced things that you’re going to be able to benefit from that perspective. And that understanding that they now have, and this is a lot less about what they’ve learned in books, it’s a lot more about what their own life experiences and what they value and what’s important to them, and where that’s gotten them in their life and how they’ve protected those values and how they’ve used financial resources to empower those values to be more and more of a priority.
And so as I thought about that, I thought, Wow, there is probably a really interesting and really long list of life experiences and key values. That would be important to think about that when you search for somebody to give you financial advice, that you felt like you had somebody who could have empathy. And they’d been down that road and you’d like to trade places, because it’s their knowledge and their experience that could help you even accelerate your process to get where you’re trying to go faster.
And so I started to think about some of these things in common that could be a value and the first one that came up was bankruptcy. If you’ve been through a bankruptcy, getting a financial advisor who’s been through that – not one who can pontificate about it, not one who read a book about it, but if they actually have real, personal experience – and they might say, well, you know, I’ve had some clients that have gone through that. And I’ve seen this and I’ve seen that. Maybe that’s enough, maybe it’s not. Maybe it would be most helpful if they’d actually been through that and been tested and tried through that. And understand that on a very personal level, what it feels like emotionally, and all the challenges and trials it might bring to a marriage relationship, or family or friends or business partners or whatever else is going on, in all that. “Ken, that’s the worst advice anybody could give me. I should go find a financial advisor that’s had a bankruptcy?” I think the school of hard knocks can be a great teacher. And from the perspective of somebody who could have empathy, and potentially help you through that process, it’s not the worst thing in the world.
Perhaps you know, do you do they have kids or not? For me, my family and kids are a big part of my life. And so to have an advisor who doesn’t have kids – I feel like they wouldn’t even really know how to put in context what my day to day life is, and how I should be organizing my finances, I just don’t feel like I’d be taking advice from somebody that I want to trade places with.
In that scenario, perhaps you have a parent, an aging parent, that takes a lot of time and resources. And you’re very concerned about and you’re obviously committed to helping that parent. And it could be that advisor could really help through that if they’ve been through that.
Another one is if you own a business, it might be nice to find someone who has also been a business owner and more than just Hey, I give advice and I sell it and you know, maybe I make my living off of this and I call myself self employed. But if you’ve run a business that’s got lots of employees and hundreds and hundreds of thousands or millions and millions of dollars in sales, having an advisor that’s been down that road and knows that – not that you want them to necessarily give you all the business advice, but just the empathy and the perspective and their tax advantage, things that business owners can use and tools to be used, that sometimes somebody who isn’t a business owner doesn’t have the same access to. And again, not that the advisor can’t learn these things in the book, but it’s empathy and it’s understanding and it’s that real life tactical experience that can really benefit and, and bless somebody who, like you or I, might be looking for an advisor to try to help us.
Another one is education. Not necessarily what education does this potential advisor have, but how do they value education? Did they get a lot of education? Or did they not follow the traditional educational path? Not that either one is better or worse than the other. But if I value education a great deal and my advisor doesn’t? There’s a mismatch of values there.
And I don’t they might not be somebody I’m interested in Trading Places with because I value education so much, or if I don’t value education, and there’s an advisor who does and who wants to keep cramming the concept of save for college, and you need to pay for this, and this and this for your kids, and you say, Look, I’m sorry, it’s just not important to me. That’s not the direction I want to go. Rather than having to say that over and over just finding somebody who’s aligned with those values could be really helpful. If your religion or the church that you participate in is a big deal to you. Not that you have to find somebody from your same congregation or same church or that they worship in the same way as you. But just having somebody where that’s a big part of their life and then they can have empathy for you and how that plays into your financial life can be really helpful.
Maybe if you’ve been through a divorce. I have heard the story I don’t know her personally, but I heard the story of a woman who went through a very devastating tragic divorce and it created a lot of financial challenges and problems for her. And she realized that all this experience she could turn around and she could go and help other women who are being taken advantage of or could potentially, you know, suffer some of the same thing she did if she had known what she knew at the on the other end of this divorce and all the horrible process she went through.
She would have been in a much better situation, she couldn’t protect herself. And so she has dedicated her career to working with women who are in the process of divorce to come in and do consulting and help and make sure that they are avoiding a lot of the pitfalls and traps that she fell into or fell for herself during the divorce process. Or if your marriage is a big part of your life. It feels a little bit awkward and possibly inauthentic to sit in front of an advisor who doesn’t know what that is themselves and again, not to being single or married is better or worse than the other to each his own or her own in this scenario, but the key thing is you know what’s valued and finding an advisor that values those. I
Is age important? Do you want somebody who’s actually ahead of you and yours? Or is that not important you if you’re 60 years old, and you’re fine to have a 25 year old person, give you advice, and that’s not a big deal to then. Great. But if you’re worried, and you think well, that 25 year old doesn’t really know what it’s like to be 65 or 75 or 85, and the fears and concerns that are present at that stage of life that you don’t feel at the age of 25. Well, guess what? Hire an advisor, you don’t have to go through all the employment laws and rules here. You can discriminate based on age, you can discriminate based on religion, and lots of other you know, areas. All I’m asking what what I’m saying is here, I want you to discriminate based on values based on what you value the most, because the most important attribute of a financial advisor is one that aligns with
Your values and what’s important to you. And they’ve lived a life consistent with some probably, it’d be really hard to find somebody who had all the same values, but had at least some and some of the most core important ones to you, to allow them to speak from a place of empathy and a place of experience to help you get to where you want to go. And you’d be willing to trade places with them. So you would gladly take their advice and gladly take any perspective that they want to offer.
So, here’s what it would look like for me. I would want someone who’s been self employed, who’s been involved in building businesses and been a leader in businesses who gives to charity, who devotes time to church. It’s a big part of my life, who has a big family with lots of kids, and I’d prefer that they’d be further along in that process. My oldest just turned 20 and my youngest is four, there’s a total of eight kids. I don’t know that they have to have exactly eight, could be maybe a little bit less, maybe more, however that would would work out. But I would want them to be ahead of me to warn me about, hey, wow, you got to consider this and this and this with kids and grandkids, and you have these things and these things to think about and to start to get ahead of, I think I would actually really value because family is very important and a big deal to me and to my wife. And that would be somebody that we would say, well, that’s somebody who we want to trade places with somebody who values that and has figured some things out ahead of what our own experiences. And then I probably want someone who knows what it’s like to be married to the same person for a long period of time, I wouldn’t benefit from somebody who has a lot of perspective around divorce, not that there’d be an inconsistent inconsistency and values but I think and not that there’s anything wrong with somebody who’s divorced or we’ve been married for a long time or anything like that is just that’s my current situation. And I think they could I could benefit from somebody who’s been in that situation and they could be empathetic toward me and give me perspective that would be helpful. So those are just a list of a few things that I wrote down to try to measure out values. I think it really depends on you taking the time to sit down and say, Okay, what do I value the most? And how can I find those values in an advisor, and I would interview and talk to advisors based more on those types of things.
Now, a couple of because I think that’s just going to be the most important attribute, hands down. A couple of things that I really recommend you watch out for, is you are considering hiring an advisor. First one is, you need to understand very clearly how they are paid. And there’s basically three ways that they will get they can get paid, and have these three, it could be a combination of two or all three of them, and you need them to be transparent, and you need them to be very clear with you about how this is working. The first one is they could get paid a commission to sell product. The second one is they get paid a fee based on the assets under management that that they manage for you it’s called AUM assets under management. And they can be paid a fee of say 1% a year, which I’ve got some opinions around that will probably say that for a future episode. And then the third option is an hourly or flat fee rate that you pay them directly. Now what’s interesting here is options are number one and number two, I just mentioned commission to sell and this the fees based on assets under management that come out of your accounts. They, in essence, get paid those are not directly from you, but indirectly from your assets or what you’re using to buy the the money you’re putting in to buy a product and then they get paid a commission on the back end or they get if you invest a significant amount of money then they get paid a percentage of that on an annual basis.
This third one an hourly or flat rate fee that you pay them directly. That’s where like money’s coming out of your checking and going directly to them. This is, in my opinion, the best way to establish a relationship with an advisor. it aligns up very nicely because you know exactly how much your pain and you understand also what the relationship is how you value it, what type of time they’ve put in to help you. And it also creates a responsibility on their part to make sure that they’re showing you what value they’re adding and justifying the value that they’re adding for the fee that you are paying directly because you know exactly what it is and you feel the pain of every dollar that’s going from your bank account to them. Now, another place to think so anyways thinking about how they get paid. It’s a really big deal to understand that and get comfortable with it. And anyways, I’ll I’m sure I’ll talk about that in a future episode.
Next you want to see Do they have education degrees or certifications that indicate that they might have some book learning and personal finance. It’s not the most critical thing. I value life experience as much if not more than the book learning. But if they’ve got lots and lots of years of experience clients are serving of experience serving clients, especially if they’re people like you. And you find the common values, that that might actually be better than somebody who has lots of education and degrees and certifications. But that’s, that’s going to be something you’ll have to measure and way.
There are some licenses and some other certifications out there in the world of financial advisors that could, that creates sort of a minimum standard, but in my mind, the minimum standard is pretty low. It’s basically passing a test that I’ve taken these tests and the tests really have nothing to do with how well you’re taking care of clients. How will you advise them to do things that are always in their best interest in not in the advisors best interest.
And that gets to my third point here is do they have any licensing in place that requires them to act as a fiduciary? And what that means is that they have a legal obligation to look after your interest Above all, at all others, even above their own, they have to seek after your best interest and do what is best for you. So finding somebody who acts as a fiduciary is important they have to be they have to pass a minimum standard test, they have to license with either the either the states that they’re operating in or with the SEC if they’re in multiple states or have certain assets under management above a certain amount, but it gives them this legal obligation that they have to meet. Now, the listener who sent this along he also asked, you know, what should the relationship look like? Let me just give you the six key parts of the relationship and it’ll look a little bit different for each advisor.
But this is how you make sure you’re getting the value for what you are engaging in number one, you should in, they should be investing and getting to know you and your specific situation along with some of your key goals, past successes and failures with money, and how money plays into your marriage relationship into your family, you know, basically into your life, whatever, whatever that life looks like.
Don’t let the advisor shortcuts you hear the need to get to know you and get to know your situation. Second, you’re going to need to provide them with either a detailed net worth statement. And if you don’t you send send me an email at can at net worth hacks. com, I can send you a Google Sheet that you can play with I mentioned at the beginning of the podcast, you can build that out or if you don’t have one of those and don’t want to go through that. They can do it for you or one of their staff members can but you’ll need to send them a bunch of statements and details that’s going to allow them to put this financial picture together of what your current state is. And then they should be taking some time to do some analysis and kind of build out and look at the future and try to line up, line up your goals with the future and how things could potentially come together for you down the road to accomplish your goals.
And then there should be some back and forth as they’re doing this analysis made maybe some additional questions, maybe an additional meeting or discussion or two, to say, Hey, what about this? What about this, I found this and how do you feel about this? So they can really get a handle on your perspectives and goals, then they should provide you with a comprehensive lifelong financial plan.And you might say, well how do you know what’s gonna happen in the future? They don’t know. But they can make some guesses. They can make some assumptions, and they can just put something out there.You may love it. You may hate it. But that’s exactly what you need is you need either love or hate whatever your future plan looks like. And then if you hate it, figure out what do I do to change it? Or if you love it say, Great and how can I do more of that and make sure that that’s what happens down the road.
Now, there’s lots of assumptions. There’s lots of guesses who knows what the markets going to return or if you’re going to have, you know, crises and tragedies that happen or huge windfalls and successes. There’s there’s lots and lots of question marks, but they are falling short of their responsibility if they don’t get you a comprehensive, lifelong plan of some sort. And that you can start to iterate on and you can start to figure out and play with, and they should then break that plan.
Once you kind of get aligned with with how you want it to look. They should break that plan into actionable steps based on highest and lowest priorities and they should be taken on some tasks to help you with and you should be taking some on and it also depend on the arrangement, maybe they’ll push more your way or you push more their way because you don’t want to take some of these things on. And then you should have regular checkup meetings and the frequency it that’s just going to depend it, it’s where the most value is, if there’s a lot of work to do, and a lot of changes or, or you’re going through some serious changes in your life may need to be more frequent if things are kind of stable and steady and things are just plugging along you might want to back that down and say, maybe we meet once a year instead of once a quarter or twice a year or Wow, I’d really need to just get on the phone with you for 30 minutes once a month right now because things are so things are so busy and and changing and you need additional perspective and advice. So that’s what the relationship should look like. just laid that out in six basic steps. So there it is the most important attribute of selecting a financial advisor, would you want to trade places with them, and then we added in just some bonus features here, which is what you should watch out for, and then what kind of basic core steps and elements of the relationship should look like. Many, many thanks to you for joining today. This is a wrap for Episode 20. Happy Day.
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