Financial Advisors (Part 1): What Are They + What Do They Do
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Hey, everyone. Really quick before we start the show, I have some really fun news to share that I've been keeping from you.

As of March 23rd, 2023, so about three months from now, I will officially be a published author. That's pretty wild to say out loud for the first time. But for the last 18 months or so, I've been hard at work with my friends and fellow financial advisors, Justin Costelli and Shauna Du. And together we have curated, read, and edited 27 different true stories written by practicing financial planners.

The book is called More Than Money, Real Life Stories of Financial Planning, and it's officially being published by Harriman House. Yes, the same Harriman House that published Morgan Housel's The Psychology of Money, which I know many of you are familiar with and has now sold over 2 million copies.

More Than Money is the first of its kind. It's a collection of inspiring true stories that reveal how real clients applied financial planning to achieve tangible results that changed their lives, not how they made a quick buck or squeezed out a few extra percentage points on their returns or the tactics they use to save millions of dollars for retirement.

These stories feature real people from all walks of life, young and old, those in debt and those with a lot of wealth, and a wide variety of situations from designing a desired lifestyle to dealing with catastrophe. They show how well thought out, personalized, and high touch financial planning can truly impact lives for the better.

My favorite part of this entire project is that every single contributor, every author agreed to donate 100% of net proceeds from this book to nonprofit organizations dedicated to improving financial literacy, diversity within the profession, and expanding access to pro bono financial planning around this country. In other words, the more books we sell, the more people we can help gain a basic understanding of money and get access to quality financial help.

Now, it's pretty rare that I ask you, the Stay Wealthy community, for anything on this show. And this is one of those rare moments where I would truly love your help. So here's what I'm doing. For the entire month of December, I'm running what I'm calling a buy one, give one campaign. And here's how it works.

If you pre-purchase a copy of more than money for yourself this month here in December, if you pre-purchase a copy of the book, I will personally match your purchase and buy you a second copy to give away to someone else in your life of your choosing. It could be a friend, a relative, a neighbor, a student, whoever you think would appreciate it and benefit from it the most. And I don't need or want their name or address or anything. I'll send you the second copy for you to dish out how you see fit.

Here's all you have to do. Just go to morethanmoneybook.com and pre-order your copy. That URL, by the way, will take you straight to the Amazon purchase page. And I'll be sure to add that link in the episode description and the show notes as well. So just go to morethanmoneybook.com and pre-order your copy. And then just send a screenshot of your purchase to book at youstaywealthy.com. That's book at youstaywealthy.com.

And then in January, my team will reach out and collect your mailing address so that we can ship you your second copy when the book comes out in March. And while I can only commit to matching one book per person at the moment, if you're feeling extra generous this holiday season and you want to support financial literacy in this country, please, please consider ordering more than one copy. Again, nobody is making a single dollar from this book.

And 100% of net proceeds are being donated back to nonprofit organizations, like one of my favorites, the Foundation for Financial Planning.

So once again, just go to morethanmoneybook.com, pre-order your copy or more than one copy, and then send a screenshot of your purchase to book at youstaywealthy.com. Assuming you're an Amazon user, I think everybody is these days, this will literally take you less than two minutes. Again, I'll provide the links and instructions and the show notes for today's episode, which can be found by going to youstaywealthy.com forward slash 174. Thank you very, very much in advance for your support. On to today's show.

Financial advisor, financial planner, financial consultant, wealth manager, wealth advisor, investment advisor, investment manager, fiduciary advisor, registered investment advisor, registered representative.

Believe it or not, those are just some of the titles used by the 300,000 licensed financial advisors across the country. And then we have fee schedules like fee-based, fee-only, commission-based, hourly, project fee, retainer fee, asset-based fee, and then my favorite, no fee.

Finally, let's not forget about those letters that we all like to put after our names to make us feel extra special. CFP, CFA, CEMA, CLU, MBA, CHFC, CMT, PFS, the list goes on.

When I started my career as a financial advisor at a large brokerage firm at 22 years old, I learned on the first day that several colleagues that were hired at the same time as me for the same role didn't have a college degree. You might be as surprised as I was to learn that you don't actually need a bachelor's degree to be a licensed practicing financial advisor. You see, unlike doctors and lawyers, there isn't really a clear career path for aspiring financial advisors.

There's no standardization of titles, no higher education requirements, no experience requirements, and we can't seem to stop coming up with new terminology to further confuse investors and retirement savers. With all of that in mind, it's not entirely surprising to learn that, according to a recent survey by Market Consult, Americans trust banks, insurance companies, and credit card companies more than financial advisors.

As a financial advisor who takes this profession and my responsibility very seriously, it hurts when I read survey results like these. It hurts to see how confusing we've made things and the trust that's been lost due to greed, due to the lack of standardization, and in some cases, the lack of oversight. If I meet a lawyer at a party, my follow-up question after learning what their profession is, is typically something like, well, what kind of law do you practice?

But if I tell someone at a party that I'm a financial advisor, they'll either run as fast as they can in the opposite direction, or they'll respond with something like, so what do you do exactly? You do like stocks and stuff or something like, I think my niece does that. I'm not exactly sure. It's confusing. Maybe you guys know each other or the very common. I wish I had more money. If I ever win the lottery or get rich, I'll call one of you.

To date, I don't think I've ever had a single person respond with, who do you specialize in working with? Or what types of problems do you help your clients solve?

Well, not everyone needs a financial advisor. The work that real financial advisors do is incredibly important. I know this because of comments I regularly get from the 90 families around the country that I serve. I know from the hundreds of emails I get every year from people sharing their positive experiences. And I know from my upcoming book, More Than Money, and the inspiring, often untold true stories that we've documented there.

So through this series, I want to do my part to help clear things up and help move this profession forward. I want to help people better understand what a financial advisor really is, what they do, how they make money, who needs one and who doesn't, how to find the right one and identify the wrong one, and the biggest pitfalls and mistakes to avoid.

It doesn't matter if you manage your own finances and investments, if you work with a financial advisor, or if you work with 15 financial advisors. If you want to gain a better understanding of this wildly important profession, this episode and this series is for you. To grab the links and resources for this episode, just head over to youstaywealthy.com forward slash 174.

According to the Oxford English Dictionary, a financial advisor is a person who is employed to provide financial services or guidance to clients. By that definition, you could consider your CPA, your banker or insurance agent, a financial advisor. You could even throw your mortgage broker or estate planner into the mix.

As HBO's John Oliver put it, the term is meaningless. There is something you should know about financial advisors. Even their name means less than you might think. The Financial Industry Regulatory Authority warns customers to be aware that financial analyst, financial advisor, financial consultant, financial planner, investment consultant, or wealth manager are generic terms or job titles and may be used by investment professionals who may not hold any specific credential.

So, financial analyst is just a fancy term that doesn't actually mean anything. Sort of like brand ambassador or the John Oliver effect. Meaningless. Completely meaningless.

Since I don't control the standardization of titles in this profession, unfortunately, and to help mitigate confusion, we're going to use a slightly more narrow definition of a financial advisor in this series. This one is from Investopedia, which says a financial advisor is a professional who provides expertise for clients' decisions around money matters, personal finances, and investments.

We're also going to agree that financial advisor is synonymous with financial planner. And I'll explain more about these two terms. But for now, just note that financial advisor, financial planner, for the matters of this episode right now, they're synonymous with each other. So with that more narrow definition in mind, what exactly does a financial advisor or what does a financial planner do? Here are nine services typically provided by financial advisors.

Investment management or investment advice, retirement planning, estate and legacy planning, tax planning, insurance planning, like long-term care insurance, life insurance, disability, saving for college, budgeting and cashflow planning, debt management, and in some cases, business planning, like advice around buying and selling businesses, financing, or even setting up business retirement plans.

I'll also add two more kind of non-traditional services to this list. The first is accountability. Just like some people might need to hire a personal trainer to regularly get to the gym or even a marriage therapist to maintain good communication with their spouse. Many people hire financial advisors to hold them accountable to taking action. Working on improving our finances isn't always the most enjoyable thing. And therefore a lot of people don't do anything at all. They don't make any progress and they just kick the can down the road.

In addition, people can be paralyzed by all the different options available to them and in turn, not do anything at all because they're not sure what to do. So having someone to guide you and hold you accountable to making progress can be a really valuable service. The second is behavioral coaching. As some might be able to attest to, there's often a lot of power in having a third party stand in between you and your money or investment decisions.

Being fearful or being greedy, these things are natural, but reacting improperly to these emotions can be really harmful to your long-term financial health. A good high quality financial advisor is often well equipped to help with managing behavior and preventing clients from making quick, emotional, costly decisions with their money. Everything from overspending to not spending enough to buying high and selling low, behavioral coaching can be a really valuable service.

Now, although it's helpful to understand some of the different services offered by financial advisors, these offerings don't always represent what a financial advisor actually does. They don't explain the pain point an advisor is addressing or the benefits that they're providing. For that reason, I like to think about the role of a financial advisor in terms of what problems they're helping people solve.

We'll get into this in more detail later, but the types of problems financial advisors help solve largely depends on the type of client that they're working with. IE, a 30 year old millionaire has a very different set of pain points than a 60 year old millionaire. They might have the same amount of dollars in their bank account, but their profession, stage of life, family dynamic, geographic location, and many other factors will create very different questions and problems that they need help with.

And while an increasing number of advisors are just like doctors or attorneys becoming specialists and dedicated to only working with one type of client with one set of pain points, most advisors in this country continue to be generalists offering to help anyone and everyone. Again, we'll get into this nuance in more detail later on, but for now, here are just some common examples of problems or pain points that a financial advisor might help you solve for.

Can I retire? If not, when can I retire? How much income can my investments sustainably provide in retirement? What's the best type of account for me to invest in? Am I invested properly? Should I take more risk or less risk? When should I take social security? How do I carefully unwind and diversify concentrated investments with sizable capital gains?

My taxes are projected to be higher in retirement than in the working world. How can I lower my tax bill? How do I plan for a potential and sizable long-term care event? How do I sell my business and use the proceeds to transition into retirement? The list goes on, but I think you get the point. And in addition to

All of these common problems and questions, just imagine how many more are brought to the surface during major life events like having a baby, getting married, buying a first home, getting a first job, getting divorced, death in a family, a costly legal battle, or even a large financial windfall.

The point that I want to drive home here is that contrary to popular belief, financial advisors and financial planners do a lot more than just create retirement plans or invest in stocks and bonds or sell insurance. High quality financial advisors, especially those that have specialized in helping one specific type of person serve an incredibly important role.

Historically, we've just done a terrible job as a profession, educating people what that role is. And our profession has been muddied up with unethical salespeople and regulations that permit harmful products to be wrongfully sold.

It's been muddied up with service models that are ripe with conflicts of interest and advisors that lack training, education, expertise, and a clear career path. We've made a lot of progress in the last 15 years, but we still have a long ways to go. Hence why I'm doing this series. So now that we have a nice baseline for what financial advisors do and what role they serve, let's briefly talk about the typical process and what that looks like when working with one.

In its most basic form, there are kind of four stages or steps that typically apply. The first step or stage is the diagnosis. And we've talked a lot about this on the show, but depending on the type of financial advisor you hire, the diagnosis can be done dozens of different ways. In general, just like a doctor wouldn't write you a prescription without diagnosing you first.

Nobody, nobody should be giving financial recommendations, investment recommendations, recommendations of any kind without first understanding your situation and your financial health. I mean, how can someone tell you how much insurance to buy or what kind of insurance without diagnosing your entire situation? How can they tell you what investments make the most sense or if you have enough to retire?

The answers to these questions are different for everyone, just like the type of medication and dosage recommended by a doctor. So in some shape or form, you should expect to go through an upfront diagnosis before receiving any recommendations.

Speaking of recommendations, that would be step or stage number two with your financial health documented and a clear understanding of your needs, goals, and concerns. Recommendations can then be made and questions can be answered depending again on the type of advisor you hire. And we'll be digging into this during the series. You might implement these recommendations on your own, or you might work with the advisor to do the heavy lifting and implement them for you.

which leads to step number three, implementation. With your diagnosis complete and recommendations in hand, it's time to implement. And it's rare that everything is implemented all at once. Recommendations are usually prioritized based on urgency and importance.

And this is why step number four, the last step is so important. And that is monitoring. I mean, can you imagine seeing your doctor once and never going back in for a checkup? Every plan, whether it's a health plan or a financial plan, needs a system and a process for monitoring to one, ensure that the plan remains on track and two, that the recommendations are being implemented properly and on time.

In addition, our lives are always changing and therefore financial plans are fluid. So a process to monitor allows for those changes to be taken into consideration and the plan to be updated periodically. Once again, depending on the type of advisor you work with, it might either be your responsibility to monitor or theirs.

Now, with all this in mind, and hopefully a good understanding of what a financial advisor is and broadly what they do, let's touch on what they don't do. There are three things that most financial advisors don't do. The first is most financial advisors cannot give specific legal advice or draft legal documents. Okay.

A good financial advisor with the right expertise can certainly review legal documents, identify gaps or opportunities, or bring in an attorney to validate and execute. And while some wealth management firms do have in-house legal teams, giving specific legal advice or writing legal documents for you is not typically a service that you would expect from a financial advisor.

The second is similar to drafting of legal documents. Most financial advisors don't file tax returns. High quality financial advisors with the right expertise will absolutely provide tax advice and tax planning services, but most will outsource the tax filing to an accountant and also work with that accountant to tie a bow on all the planning work. Once again, some firms do have in-house CPAs and accountants, but it's not something that you would likely expect or need from a financial advisor.

And then lastly, and there are no exceptions to this one, in my opinion, financial advisors cannot, as hard as they may try, they cannot time the financial markets or predict the future. As Peter Lynch famously said, far more money has been lost by investors preparing for corrections or trying to anticipate corrections than

I'll say that again because I really like that quote. Peter Lynch said,

Look, some might get lucky and might turn that luck event into a marketing campaign or a best-selling book, but expecting your financial advisor to have a crystal ball and be able to predict the future or outperform the markets is not something that you should expect from them.

Now, I know today's episode might seem a little biased toward financial advisors and working with one, but don't you worry. Do it yourself. I'll be doing plenty of defending for you in this series. I'll be the first to acknowledge that not everyone needs to hire a professional. In fact, if you've ever reached out to me or my firm, you know that one of the first things we say is that I'm not

going to ever convince you that you need my help or that you need to hire a financial advisor. My goal is always to educate and provide the information necessary like I'm doing right now so that you can make an informed decision and determine what's best for you. So with that next week, we'll continue with our financial advisor series. And I'll be talking about the different types of financial advisors, the pros and cons of working with one and the different ways that financial advisors are compensated.

Once again, for all the links and resources mentioned today, just head over to youstaywealthy.com forward slash 174. And one last reminder to consider my December offering for the more than money book. Just go to more than money book.com pre-order your copy, send a screenshot to book at youstaywealthy.com. And I will send you a second copy for you to gift to someone in your life.

Thank you, as always, for listening, and I will see you back here next week.