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Beginning investors, how to find a Financial Advisor Thumbnail

Beginning investors, how to find a Financial Advisor


Recently I was asked “How should a beginning investor find a Financial Advisor?”

Upon reflection I thought that this was an excellent question that does not receive enough attention. I am going to discuss how I would recommend someone starting out find a Financial Advisor.

 Now to start we are in a Post-Regulation Best Interest era. As a quick explanation for those who are not aware. Beginning July 1, 2020 all financial professionals are required to put a client’s Best Interests ahead of their own interests. There were a lot of changes that have taken place due to the enforcement of Regulation Best Interest, Reg BI. One is that the title Financial Advisor/Adviser is no longer permitted unless you meet certain qualifications. Many of us in the industry are happy to see that this line has finally been drawn.

 But, this means that there are going to be a lot of people in the industry now calling themselves Financial Professionals instead of Advisors. I do not have a problem with Financial Professionals, but this is a catch all term which tells you very little about the individual. If you are looking for someone who has studied and taken higher level tests and designations, I would look for a Financial Advisor. In fact, a Financial Professional is extremely limited in their ability to manage money in an Advisory or Wealth Management program. Where a Financial Advisor who is most likely an IAR, Investment Advisory Representative, is able to provide a full suite of services which are not available to Financial Professionals.

Out of the gate let me admit that I am biased as to how I view investing. I believe that most people are better suited being put into an Advisory or Wealth Management program. I will not go into the reasoning for that here, as it would be an article, or chapter of a book, all by itself. But, suffice it to say that in over 20 years in the business I have come to believe that the investment expertise of a good Money Manager and Financial Advisor are extremely important.

 Because I believe that a good Financial Advisor is important my first question to someone who is looking to start investing is. Do your parents currently have a Financial Advisor? I believe that the resource of the parents Financial Advisor is often over looked. Assuming that the parents have a good relationship with a successful Advisor, their Advisor would normally be happy to take on their child. This helps you get around one of the biggest problems for people who are just starting out. Account Minimums. Most successful advisors have account minimums which can shut out beginner investors, but if an individual’s parents already have a relationship then it is very common for that Advisor to waive their account minimum and take on the Client’s child.

 Time in the business and constant learning make your parents’ successful adviser the one you should seek out.

 This is the easiest way to get access to a very qualified Advisor who already has a relationship with the family. In my practice I have found that when I take on a client’s children the parents are relieved that their child is getting advice from an individual they trust and have had a working relationship with for years, often decades. This also gives the beginning investor access to services and information that they may not have had access to otherwise. I believe in most situations this is the ideal scenario.

 But, what if the parents do not have a relationship with a Financial Advisor?

 Under these circumstances it is unlikely that you will get the service model that would be found in the above scenario, but there are some excellent ways that a beginner can get started. One way is to start with a Robo Advisor. Robo Advisor is a term used in the industry to refer to an online Advisory, or fee-based plan, that makes basic recommendations, as far as investment models are concerned, based upon your risk tolerance. Normally there is no service model provided, but the fees are relatively inexpensive. The minimums in these plans are usually vey low, around $5,000-$10,000.

 The downside is that there is no one to guide you through rough times in the markets and there is no one with experience helping to educate you on what is happening in the markets. You will receive emails and market commentary.

 I would recommend the Robo Advisor to start, but with the goal to meet the account minimum of a successful adviser and eventually move your account there. Voya has a very good program called the Voya Digital Advisor, which is unique in that you will have an Advisor who will discuss your account with the individual annually. It is still a very limited service model, but they do have the ability to talk to an Advisor annually.

 During the time that the beginning investor is building their account it is good to identify what kind of an Advisor they would like. We are all different and operate on different business models and service levels. If you are looking for high touch white glove service, then you will want to make sure that the Advisor you choose later can show that he provides this level of service. Also, consideration as to advocacy and community might have a role to play in your choice.

 So, to recap I would recommend someone find a Financial Advisor by first seeing if their parents have an existing relationship with a successful advisor.

 If there is no existing relationship then I would look to a Robo Advisor until the beginning investor is able to meet an Advisor’s Account Minimums and then move to that Advisor.

 Of course, we at D. P. Cushing & Associates hope that you would consider us.