There are a lot of people who do their own investing these days. I’m all for that. But DIY investing isn’t for everyone. Have you ever asked yourself questions like – What do I do if I want help with my finances? How do I choose a financial advisor? Do I need a financial advisor near me? Are there competent financial advisors online? If so, how do I vet them to be sure they are safe?
I have good news! We will answer these and many other questions in this post. There are three questions to ask yourself before getting started.
- Do I need a financial advisor? (since you’re reading this, we will assume the answer is yes)
- What kind of financial advisor do I need?
- Do I need a financial advisor near me?
There are lots of questions within each of these that we will address. We will offer three firms to consider and our recommendation for the firm we recommend. With that introduction, let’s dive into the reviews.
Do I Need a Financial Advisor?
To answer that question, you first need to decide what help you need in managing your finances. For example:
- Is it help with basic budgeting?
- Saving? Investing? Retirement planning?
- Income planning? Insurance review?
- Creating an estate plan?
- Paying off student loan debt? Refinancing or debt consolidation?
Competent financial advisors come in many shapes and sizes. Deciding what you want them to do for you is the key to finding the right advisor. The answers to the above questions are where you should start. If you just want investment help, there are inexpensive options to consider (more on that shortly). If you want a comprehensive plan that covers all of the areas, that’s another type of advisor. The bottom line—Before searching for or interviewing any financial advisor, know what it is you want them to do for you. It’s the best way to match an advisor to your needs.
Types Of Financial Advisors
Now that you’ve decided what you want a financial advisor to do for you, it’s time to find the right kind of advisor. That’s the hardest part of the process. Why? Financial advisor labels are confusing and not unified. The term financial advisor is broad. Anyone with some licenses can and do use the term.
Insurance agents, brokers, mutual fund salespeople, and many others use the general term, financial advisor. To flesh out what that means, we need to dig a lot deeper. There is a lot of confusion about financial advisors. It starts with what they call themselves. Are they brokers or advisors? Fee-only or fee-based? Commission only or hybrid? Financial advisors or financial planners?
Then there are the designations that come with the industry. There are CFP®s (certified financial planners) ChFC (chartered financial consultants), CFA (chartered financial analyst), CIC (chartered investment counselor), CPA (certified public accountant) PFS (personal financial specialist), AIF (accredited investment fiduciary), CMFC (chartered mutual fund counselor), CIMA (certified investment management analyst), RICP (retirement income certification professional) or the CPWA (certified private wealth advisor). There are many more than this.
Whether designations are critical is outside the scope of this post. The answer is not simple. Like many things, it depends on several circumstances. As mentioned, it starts with what you want your advisor to do for you. The CFP® designation is the most accepted mark for those seeking comprehensive or general financial advice. They are trained to take clients through a detailed process to determine needs, goals, and develop an appropriate plan.
The Gold Standard
For those seeking financial planning, the CFP® designation is considered the gold standard. That’s not to say you can’t get good advice from those with other designations or from those who don’t have a specific designation. You can. But the CFP® designees have excellent training and ongoing continuing education requirements.
From the CFP® Board website: The Standards of Professional Conduct (Standards) define financial planning as “the process of determining whether and how an individual can meet life goals through the proper management of financial resources. Financial planning integrates the financial planning process with the financial planning subject areas.”There are six steps to the financial planning process:
- Establishing and defining the client-planner relationship
- Gathering client data including goals
- Analyzing and evaluating the client’s current financial status
- Developing and presenting recommendations and alternatives
- Implementing the recommendations
- Monitoring the recommendations
“Financial planning subject areas” denotes the basic subject fields covered in the financial planning process which typically include, but are not limited to:
- Financial statement preparation and analysis (including cash flow analysis/planning and budgeting)
- Insurance planning and risk management
- Employee benefits planning
- Investment planning
- Income tax planning
- Retirement planning
- Estate planning
Standards Of Care
Another area to consider when choosing a financial advisor is the standard of care that governs their activities. There are two standards of care in the industry, and an advisor will either follow one, or a combination of the two:
- The suitability standard
- The fiduciary standard
The suitability standard of care says that the product or service offered by the financial professional (whatever they’re calling themselves), must be “suitable” to your situation. Here’s an example. Let’s say you go to an advisor to get advice on how to invest your money. They ask you some questions about risk tolerance, time frame, etc. They then decide you need to have a large company mutual fund (or ETF) in your portfolio.
The recommended fund has an annual management and expense ratio of 1.20%. There are other funds available in the same category with fees of less than 0.15%. The historical returns of the fund with the higher fees are less than those of the fund with the lower fees. Did I mention that the advisor gets paid more to offer the first fund over the second?
Under the suitability standard, the broker is within his rights to offer you the higher cost fund with historically lower returns. Why? Because it’s “suitable” for your situation. It’s a large company mutual fund that fits as part of your overall portfolio strategy.
The Fiduciary Standard
The fiduciary standard works quite differently. It’s the highest standard of care for investors. Trustees of trusts operating for the benefit of their investors or beneficiaries must adhere to the fiduciary standard of care.
The fiduciary standard requires that advisors put their clients’ interest ahead of their own. Here’s a definition from Bankrate.com: “A fiduciary is someone tasked with overseeing someone’s asset investment. In the U.S., fiduciaries are bound by law to apply the highest standard of care to their customers, or beneficiaries, which is called fiduciary duty. Fiduciary duty means that the financial advisor is acting in the best interest of the beneficiary: making sound investments that maximize the beneficiary’s returns instead of the financial planner’s profits.”
Let’s go back to the oversimplified example I used above. Someone operating under the fiduciary standard is bound by law to offer you the lower cost, higher return fund that pays them less than the first fund. That’s what putting the client’s interest ahead of the advisor’s looks like. Let me be clear. Just because someone operates under the fiduciary standard, it doesn’t mean there aren’t advisors who do the wrong thing. The instances of fiduciaries skirting the rules are much less frequent than those operating under the lower standard. Advisors with the CFP® designation follow the fiduciary standard.
To add more confusion to the subject, some advisors operate under the hybrid model. Depending on what they’re offering, the advisor might be working under the suitability standard or the fiduciary standard. The competition from registered investment advisor firms operating under the stricter fiduciary standard put pressure on the firms operating under the lesser suitability standard.
What did they do?
They formed their own registered investment advisory firms as subsidiary companies. That allowed advisors in those firms who passed the Series 65 or Series 66 securities tests to work with clients as fiduciary. Do you see any problems with this method? If not, let me explain. When an advisor meets with a client with two possible standards, there is an inherent conflict of interest. If they can make more money selling you a product that’s suitable for you rather than in your best interest, they can still do that.
Most advisors don’t operate that way. I want to be crystal clear about that. But given a choice, wouldn’t you instead work with someone who chose the higher fiduciary standard of care as their method of working with clients? Finding an advisor committed to putting your interests ahead of their own should be the baseline.
The next area to consider is advisor compensation. There are several ways advisors get paid.
- Commission only
- Fees and commissions
Advisors under the commissions’ compensation method get paid on products you buy from them. If you purchase individual stocks or ETFs (exchange-traded funds) on the stock market, the firms they work for receive a commission. The advisor gets a portion of the firm’s commission. If you buy a mutual fund, annuity, or insurance product from your advisor, under the commission model, the advisor gets paid a commission on the product you buy.
Annuities and life insurance products, especially whole life policies, are among the highest commissioned products brokers sell. Some of these products are very good and can fit well into your planning. Others can derail your wealth plan. High fees, often to offset commissions paid to firms and their advisors, can ruin the returns of your investments. Once again. Commission-based advisors aren’t necessarily bad advisors. But when your compensation comes from products you sell, the temptation to sell higher commissioned products under the lesser suitability standard can be hard to ignore.
There is a place for the commissioned advisor. Overall, it wouldn’t be my first choice when looking for an advisor.
Fees And Commissions
The fee and commission model is the hybrid model we talked about earlier. Here, an advisor can set up an account under the fiduciary standard and charge fees. They can also sell products with higher commissions. It violates regulation to take commissions from products sold in an account under a fee model. But there’s nothing to say you can’t have your IRA as a commission account and a taxable account under the fee-based model. Once again, it’s about reducing potential conflicts of interest of the advisor.
Under the fee-only model of compensation, the only fees you pay are for the advice you receive. There are no commissions paid. There are no high-cost products sold. The advisor can’t offer you high-cost funds that pay commissions when lower-cost options are available. That would violate his putting your interest ahead of his own. One could argue that any advisor receiving compensation for advice has a conflict of interest. From a purely technical standpoint, that’s true. However, the conflicts that come from payment are much less under the fee-only model.
Types of Fee-Only Compensation
There are several ways to pay advisors under the fee-only compensation model.
- Asset-based fees
- Hourly fees
- Subscription-based fees
Let’s take a look at each one separately.
Also known as AUM (assets under management) fees, you pay the advisor a percentage based on the amount of money they manage for you. AUM fees became the most popular and accepted standard as the industry moved away from the commission-based compensation method. The most common number thrown around when talking about AUM fees is 1%. That means if you have a $250,000 portfolio, your annual cost to the advisor would be $2,500 ($250,000 x .01). As the portfolio value increases, so does the fee.
Conversely, if the portfolio value drops, the fee drops with it. The AUM model has come under significant pressure from the personal finance blogging community and financial media. Those charging an AUM fee are still under the fiduciary standard of care. Keep in mind, hybrid advisors with the ability to sell products can wear both hats when they work with you. Let’s talk about the other fee-only options.
Flat And Hourly Fees
Under the flat fee model, advisors charge one price for their services. If you’re looking for specific types of services (comprehensive planning, insurance review, investment advice), a flat fee approach may make sense.
In the flat fee model, advisors charge one set price for specific services. A comprehensive plan might range from $500 to as much as $5,000 or more. The price depends on the complexity of the planning. Knowing what you want is the key. Most firms define what you get for the money and their websites list the services included in each plan. You can choose from the menu what you want them to do for you.
Advisors offering flat fees often provide the ability to hire them on an hourly basis. Costs vary wildly with hourly advisors. I’ve seen prices ranging from $100 hourly to as high as $500 or more. When looking at a firm, be sure you know what types of clients they work with. Most firms list those on their websites. Firms charging the higher hourly rates usually work with high-net-worth clients. If you’re not a high-net-worth person, there’s no reason to pay the higher hourly rates.
The Subscription-Based Model
The subscription-based model is one of the newer entrants to the field. Here, clients pay a monthly, quarterly, or annual subscription fee. Like flat fee and hourly firms, costs for the subscription-based model have a wide range. The subscription-based compensation model is growing in popularity.
Those with incomes of $75,000 or more and liquid assets of $100,000 are often the target market for subscription-based planning. Why? Many don’t have enough assets for firms charging an AUM fee. Many advisors have ignored this market and chase the higher net worth clients.
Robo advisors and subscription-based financial planning firms target the mass-affluent market as their clients. That doesn’t mean they don’t work with high net worth clients. They most certainly do. There are far more mass affluent clients than high net worth clients.
Robo advisors offer one of the lowest-cost investment solutions. They provide investment management services with account minimums as low as $5,000. Fees for investment management range from 0.25% and up. If you’re looking for someone to manage investments, these firms are worthy of your consideration. Nerd Wallet offers a review of what they think are the nine best robo advisors.
Do I Need A Financial Advisory Near Me?
You’ve decided what you want your advisor to do for you. You’ve narrowed your search to the type of advisor you want. Now it’s time to determine if you want or need to have a financial advisor near you. If meeting someone in person is essential to you, then the obvious answer is yes. Find someone close enough with whom to have in-person meetings.
Here’s my take on the subject.
Finding a financial advisor near me is not nearly as important as it used to be. Technology has improved dramatically in the past several years. Many firms, large and small, use this technology to work with their clients. They offer online video meetings where clients and advisors can, quite literally, be face to face.
Financial planning is now more collaborative than ever. In the past, advisors and clients would sit down across the table from one another and complete an extensive multi-page questionnaire to determine goals, desires, and needs. The advisor would then take that information and created a financial plan from it.
Why was it done this way?
Well, sending the forms to prospective clients didn’t work. There were so many questions to answer and so much information to gather that most clients never completed the questionnaires. So, they went to the office and answered the questions as the advisor asked them and recorded the answers. It was a completely inefficient, time-consuming process. The more modern advisory firms now do most of their planning and meetings online. It’s more efficient, more collaborative, and more productive. It streamlines the planning process for the client and the advisors.
Options For Financial Advice
There are many options available for financial planning done remotely. Even the Robo advisors now realize they need to offer more than just investment management. Here are three firms to consider when looking for a financial planner.
XY Planning Network
The XY Planning Network is a national organization with firms across the country as members. They have a natural selection process that starts with what you’re looking for an advisor to do (a recurring theme).
You enter those criteria into a search box and recommended firms come up. You can likely find a firm in your area. If not, many can work with you remotely. Firms accepted must be fee-only. Their ideal clients are Gen X and Gen Y clients. They have no minimum requirements. They offer a flat fee, retainer, and subscription-based fee structures.
Garret Planning Network
The Garret Planning Network has been around since 2000. Like XY Planning, they require advisors to be fee-only, financial planning focused firms. Searching for an advisor is also a smooth process. You can search by specialty from things like advice by phone or web, military, professionals, portfolio management, real estate investing, etc.
Once chosen, the second choice breaks it down even further. For example, under the professional category, the options are engineers, legal, and medical professions. Advisors agree to charge clients based on an hourly basis. They must also offer investment management services. It’s not clear from the website whether that includes advisors who charge an AUM fee.
Our Choice – Facet Wealth
Facet Wealth started in 2016. Their leadership team includes eleven people with varying backgrounds in the technology and financial services industry. The combination of experience provides a well-rounded, diverse set of skills that brings the best of the technology world to the financial planning and investment space.
CEO Anders Jones and Executive Chairman Patrick McKenna are both experienced entrepreneurs and early-stage tech investors. Their expertise and raising money and managing growing companies has allowed Facet to get funding early on in their development that most firms wait for years to get. In 2018, they raised $33 million from firms like Warburg Pincus Private Equity and venture capital investor Slow Ventures.
Investment of this size this early in a company’s development speaks volumes about the confidence in what they’re trying to build.
Why Facet Wealth?
Facet Wealth is our choice for fee-only financial planning services. Their firm is based in Baltimore, MD, and operates in all fifty states. Clients of Facet Wealth get a dedicated CFP® as their financial advisor. Other firms often have a senior advisor start the plan with a junior advisor or a client services person takes over the account. At Facet, you have a dedicated relationship with the same planner from the start.
All of the nineteen financial planners at Facet are CFP®s. That’s a requirement. They don’t employ salespeople, only qualified, professional financial planners. As such, the firm is a registered investment advisory firm operating under the stricter fiduciary standard discussed earlier. They are committed to providing services that are always in the best interests of their clients.
To us, that says they are serious about providing the most comprehensive services and planning available. All planners are carefully vetted and have had years of experience before joining Facet.
CFP®s need staff to support them. Facet provides that support. Along with the nineteen CFP®s, there are 27 members of what they call their Client Success Team. Two managers head up that team. Their client success team is a diverse group, with each having years of experience in the industry.
Back office and technology support
Their back-office team includes more qualified personnel. Those include compliance, engineering, operations, software engineering, back-office support, trading, and marketing. The funding Facet received allows them to provide staffing that younger firms can rarely replicate. Why does that matter? Facet believes in hiring and working with the best and brightest people. The money they’ve invested in their people validates that principle.
What Drives Facet?
For years, financial planning was only available to the wealthy. For those without a substantial liquid net worth, planning was mostly too expensive. Unfortunately, this is usually the group of people who need planning the most. When advisors are paid based on commissions or an AUM fee structure, they find themselves chasing the same small group of high net worth investors.
Facet’s team believes in making planning available to everyone at “a price point that makes sense.” They’ve seen the industry change. They think the old ways of offering and paying for financial planning advice are outdated. It excludes too many people; that “the future of financial advice is transparent and simple and focused on your goals, not your assets.” The investors in Facet Wealth share this vision and want to bring these services to all who want and need them.
Facet has invested in technology and solutions that make it easy to meet and work together on financial plans. All meetings are done virtually, either via videoconference or via telephone. The initial consultation is designed to determine immediate goals, understand the financial landscape, and place clients with the right advisor. Once the advisor is selected, the client meets with them going forward.
The initial consultation with the CFP® professional is complimentary. That meeting is usually about an hour-long conversation. If at the end of the consultation, clients don’t feel like Facet is a good fit for their needs, they owe Facet nothing. That doesn’t happen very often. But it’s important to know that they aren’t trying to sell you anything. They want mutually beneficial, long-term relationships with their clients.
The Facet team is available to meet during the day or evening. They realize their clients work during the day and have difficulty fitting meetings during their workday. Some firms have a limited number of sessions included in their fees. Want more meetings? Many advisors and firms charge extra for those calls or meetings. Not Facet. You can call your advisor at any time for any question, big or small.
Facet charges fees based on the services their clients need. You only pay for what you use. If you want someone to review and make recommendations on your insurance or estate plan, that’s what you will pay for. They don’t believe in charging an AUM fee.
Many clients starting or building their wealth, don’t have assets. That’s why Facet chose the flat-fee subscription-based model. They believe that’s the fairest way to charge for planning. It allows them to be inclusive, rather than exclusive. Their goal of making planning accessible to the masses is achieved best under this pricing model. That also means that if Facet manages investments for their clients, there are no additional or hidden costs. Typical fees range from $500 to $5,000. Fees can be as low as $40 per month.
Remember, Facet does not base on the size of a client’s portfolio. Instead, they base them on the complexity of the planning required. They don’t list their specific fees on the website. Instead, the fees come are determined after the initial consultation call. The clients always know their fee before moving forward. Their pricing is transparent, open, and honest.
The other differentiating thing about Facet is their clear focus on working with four types of clients:
- Young professionals
- Young families
- Approaching retirement
You can find a description of each client group’s characteristics to see if you fit into one of these groups. Here’s an example of the description of young families.
Young Family / Mid-Career
Besides the onesies, the crib, and the truckloads of diapers there are a lot of other important things to consider after having your first child. Well, the diaper pail is actually pretty important, but you’ll also have to start thinking about a bigger house and the college tuition that will be here sooner than you think. We can help. Together, we’ll look at your financial life holistically. Assets. Liabilities. Investments. Insurance. Then, we’ll discuss your long- and short-term goals to really understand you as a person and begin planning your financial future. From there, we can create a plan that saves for college while also adding insurance to protect the ones you love. New babies grow up fast; it’s important you enjoy this time in your family’s life without worrying about your finances.
Choosing a financial advisor is one of the most important decisions you can make. Stories abound about people who have been misled by people calling themselves advisors. We hope this post guides you through a process to help you determine the best advisor for you. Remember, it starts with what you want an advisor to do for you. Without that, you’re more likely to make the wrong decision. With the goal in focus, following the process laid out here will help you make the right choice.
XY Planning and the Garret Network are good choices. If you’re someone who says, “I want a financial advisor near me,” than these two firms may be a good fit. Otherwise, we’d encourage you to check out Facet Wealth. You’ll get a dedicated CFP® committed to operating in your best interest. You’ll receive and pay only for the services you want and need. Pricing is fair. The support and ongoing service are top-notch. They’re our choice for flat-fee and subscription-based financial planning.