Easy Money: Don’t Work with a Financial Advisor(Until You Read This)

It might sound like I’m bashing financial advisors, I actually am one. But you need to know that the words “financial advisor” are not regulated. Anybody can call themselves financial advisors, and they might not have any licenses, credentials, or backgrounds at all. What I’m going to teach you today is how to find out whether your financial advisor has the credentials that you want and what capacity they have to work for you. The first link you’re going to want to check out is BrokerCheck.Finra.org. What that’ll do is allow you to look up and do your research on who you’re deciding to work with. They’ll tell you whether or not they’re registered, what licenses they’ve passed, and whether or not they’re even advisor at all.

What a lot of people find out is the person they thought was a financial advisor actually isn’t. Maybe they’re an insurance salesperson, maybe they are a salesperson for another company but they’re calling themselves a financial advisor. This website will allow you to do the research and make sure that it’s the person you think you’re working with. The other thing that this website will do is it will allow you to see if they’ve had any complaints, if they’ve had any lawsuits against them, if they’re in good standing, and everything in between. It’s a tool you are definitely going to want to use if you’re going to work with a financial advisor.

The second thing you need to know is that financial advisors, even when they’re licensed, can be brokers or they can be fiduciaries. A broker is somebody who basically charges a commission based on trading your assets or putting them into an account. A fiduciary is somebody who charges a fee either upfront or on the assets, but is legally obligated to be in your corner. A fiduciary has to make sure that they’re putting your interests before theirs. Licensed advisors can also be dually licensed, which means that they can charge a commission or they can act as a fiduciary. This comes into play is if you want things like annuities or you want products that maybe it’s better to charge a commission on, those types of advisors can actually do both. The way you find out whether or not your advisor has the license to be a fiduciary is to look closely at their Series. The Series are the tests that financial advisors take. If they have a 65 or a 66, that means that they are registered to be a fiduciary.

The last thing that you need to know is how financial advisors get paid, and you shouldn’t feel bad asking this question. They’re spending their time, it’s obvious that they’re making a living, so how are they actually getting paid? Like we talked about before, there’s three different ways.

  • The first way is by charging commissions. That can be mutual funds, stocks, bonds, annuities, insurance products, all of those are different ways that you can get paid a commission as a financial advisor. Commissions aren’t really good or bad, you just have to know whether or not your advisor’s paying them and where they’re coming from. Insurance products will usually pay a commission out of their pocket, out the insurance company’s pocket. Mutual funds, if you do an A share and it’s a 5% commission, you’re actually paying that 5% up front. Just know if they’re making a commission, where’s that money coming from.
  • The second way a financial advisor can get paid is by charging a fee on the assets, and this is a pretty common one, where they say, “Okay, I’m going to charge a 1% fee to manage your money and we’re going to participate in gains and losses together. If your account goes up by 20%, what I make is going to rise by 20%, but if it goes down by 20%, what I make is going to fall by 20%.” A lot of people like this because they want their advisor in their corner working with them instead of just charging them commissions on what they have.
  •  The last way a financial advisor can get paid is by charging a planning fee. The way we do it, somebody comes in and their cousin or nephew is a financial advisor but they’re looking for a second opinion, or they manage it themselves they want some guidance. We’ll do a planning fee and give them our opinion and just charge a set amount for our time. That’s pretty common for those scenarios or if you’re a business owner.

Those are the three ways that financial advisors can get paid, and you should absolutely ask these questions. You should ask, “What Series have you passed? What licenses do you have? How long have you been in the business?” And most importantly, “How do you get paid?” If you’re comfortable with all of that, then financial advisors can be a huge asset to help you meet your retirement goals and your long-term financial goals.

Securities and advisory services offered through Madison Avenue Securities, LLC, member FINRA SIPC, and a registered investment advisor. Madison Avenue Securities, and Don Anders are not affiliated companies.