The Millionaire Next Door

Help Wanted? An Interview Guide for Hiring Financial Professionals

Amid any chaotic market or environment, many of us will seek professional advice, especially when it comes to achieving financial goals. Companies like Fidelity are hiring new staff and advisors to take on the increase in prospective clients who now want financial advice. We have anecdotal evidence of this increase at DataPoints, where many advisors have seen a rise in inquiries from those seeking advisors. The increase in new clients makes intuitive sense, as some typical DIY Household CFOs are looking for reassurance or the advice of financial professionals, while others who always intended to get help feel that now is the time. 

Finding the “right” advisor is a difficult task for those of us who are not financial services industry insiders. As an example, doctors and lawyers that are actively practicing their craft must take an oath to do right by their clients. However, this is not the case with anyone serving clients in the financial services world. Household CFOs have to hire these outsourced financial professionals with great care and caution. Outside of the critical competencies for building wealth and investing, such as being frugal and spending time managing finances, hiring trusted advisors is one of the essential aspects of economic success, as many prodigious accumulators of wealth will tell you.

In the past, many millionaires (and high- and ultra-high-net-worth clients) who sought out fiduciary financial advice would consult with trust departments in local banks. More options exist today. If financial planning and investment management is the need, there are multiple resources to find professionals who act in your best interest, such as the National Association of Personal Financial Advisors. Outside of financial planning and investment management needs, Household CFOs may seek professionals to help with other money-related concerns. As an example, some professionals work with clients who need financial counseling to get through a money-related crisis. Other clients may seek a financial coach to improve decisions and habits that impede following a financial plan. Or, some may work with a financial therapist to overcome money-related relationship or personality challenges that prevent economic success.

Let’s assume for a moment that instead of you seeking out a financial professional, you receive multiple solicitations for your business. For many of us, this is the case today, as the marketing machines of most large (and small) financial advice companies are in full gear. How can you screen these potential advisors? In The Next Millionaire Next Door, we highlighted three main questions to ask any prospective financial advisor who seeks to provide you with advice. While these certainly are not the only questions to include when interviewing potential advisors, they frame the key points to consider.  

Transparent Pricing: What am I going to pay you?

It is still the case that many financial professionals receive commissions from large investment product companies. However, the fee-only segment of financial services, while still small, is growing. Only two years after we published these words in The Next Millionaire Next Door, the subscription and retainer models are growing:

So-called “fee only” financial advisors that don’t take commissions (or any other form of kickback from large financial products companies) for the financial products they invest your money in have been a small but steadily growing segment of the industry for years now, and prodigious accumulators of wealth understand that this is the only way to pay for financial advisory services. The “fee” can be a percentage of “assets under management” (or “AUM” in the lingo), or a more predictable and straightforward “retainer” or “subscription” fee per month or year.

Clarity in Value: What value am I getting from you?

While we may turn to advisors or wealth managers initially because of investing-type needs, much of the value of working with a financial professional is in the influence that professional has on our investing decisions, helping clients to avoid biases in buying or selling at the wrong times. 

For many years now, Vanguard has conducted a research study titled Advisor’s Alpha that catalogs and quantifies the additional value provided by professional financial advisors. The Vanguard study calculates an incremental benefit of on average approximately 3% of additional portfolio return based on benefits from items such as portfolio rebalancing, portfolio construction, and improved investing behaviors (e.g., not buying high and selling at the bottom). 

The value of a financial professional, though, can go farther than merely helping to navigate market turmoil. As many are coming to realize, the value of a financial planner, coach, counselor, or therapist is also attributable to their influence on general economic behavior. And, it is those more mundane types of decisions (spending, saving, budgeting) that lead to greater financial success in the long run. As we wrote (emphasis added): 

But this analysis quantifies only the benefit received from professional financial advisors in relation to the money already saved and invested. What about additional monies that are saved (and ultimately invested) because of professional financial advisory services? Our market research conducted through DataPoints indicates that individuals who are able to improve their wealth-building behaviors stand to benefit from an increased annual savings rate that is 143% more than their low-performing peers (17% versus 7%). (And note: these benefits can be achieved through improved financial behaviors implemented either on a do-it-yourself basis or through the assistance of a professional financial advisor.) In other words, individuals who consistently exhibit successful wealth building behaviors in areas including frugality, social indifference, responsibility, and others, save on average 143% more each year than their low-scoring peers. If a financial advisor can help you boost your annual savings rate by even half this much, she will be worth her weight in gold.

Trust Required: Are you acting in my best interest?

Many are looking to profit during this time, including many in the financial services industry. Household CFOs are responsible for determining if a financial professional is acting in their households’ best interest. “Acting in your best interest” means that the professional has taken a fiduciary oath:

This should really be the first question in any professional services relationship, and financial advisors are no different. We are always looking to assess this issue in the people we do business with and seek counsel from, and in the arena of managing our money it is critically important. For decades now, “financial advisors” operating under the “stockbroker” model of selling products for commission have made this question a difficult one to answer. But the fee-only financial advisors referenced above of today are typically operating under a “fiduciary standard”—the same way that attorneys have operated under state bar rules—that demands and requires that they act in the best interest of their clients at all times. (This is one of those areas where a new rule is unveiled and it’s hard to imagine that it hasn’t always been the rule.)

Many of us are looking for professionals who can help us navigate our household through the choppy financial waters of the pandemic. When seeking a professional or screening through financial advisor solicitations, at the very least,  include these three questions in any reply or conversation. Run any answers through the insights above. If there is hesitation or annoyance at your questions, move on to the next candidate.


1 thought on “Help Wanted? An Interview Guide for Hiring Financial Professionals”

  1. Thank you for your article. I do use a financial advisor and we used this time to rebalance our positions, raised cash, and reinvested in some new funds that will benefit as the economy begins to re-open. I must admit, It was stressful for me during this time.

Leave a Comment

Your email address will not be published. Required fields are marked *