Maybe you’ve read my last four posts and still aren’t sure you want to tackle investing on your own, or maybe you’ve already got some investments in a managed account somewhere, or maybe you’re already a bazillionaire (in which case, please stop reading this blog and go do something useful), but I’m sure some of you are still thinking that you would rather hire someone else than have to think about all this gobbledygook on your own. You know what? That’s OK. This is a space of no judgments. (Ok, maybe a few, but not on this particular topic…)
But how do you decide who can help you? Sadly, there’s no magic machine that will make money for you.
Your best bet, hands down (apart from doing it yourself, of course), is to hire a fee-only advisor — someone who you pay a flat fee to give you advice. I know this sounds cuckoo given my previous rants about fees, but think of the alternative: if you’re not paying them a fee, how do they make their money?
Yep, they work on commission. Great for them, but big mistake for you.
Many “financial advisors” (which go by many names, including stockbrokers, broker/dealers, advisors, and planners) earn money based on what products they sell you. Seem like a conflict of interest? It is. The crazy part is that this is how the system is designed to work. Disclosures of fees are often limited and confusing, and you the investor are often left thinking that the “advisor” is working in your best interest. They’re not.
Instead, broker/dealers and the like must meet a standard of “suitability” — is the product they’re selling “suitable” for your needs? What that means, I have no idea, nor do they, nor do you. Unlike attorneys, for instance, there is no required “fiduciary” standard that says your stockbroker should recommend investments based on YOUR best interests rather than theirs.
Every time I read this I still think it’s bonkers so I’ll try again: investment professionals who are trying to sell you are product are not required to work in your best interest, which means there’s a good chance they’re selling you something in the interest of making more money for themselves, not you. YIKES.
So what’s a lonely investor to do? Don’t panic. There are options, including many, many, wonderful and talented fee-only advisors who will work for you on a fiduciary basis to identify what products they think will serve your needs best.
How to find such a gem? Look to NAPFA, the National Association of Personal Financial Advisors. To be a member of NAPFA, an advisor must work on a fee-only basis and have a Certified Financial Planner designation (which requires certain coursework, passing an exam, and two years of professional apprenticeship experience). They must also take a fiduciary oath to work for their clients’ best interests. This is the best way to find a fee-only advisor.
If you feel as shocked as I did when I first learned about this and you already have a professional you’re working with or interviewing, don’t be afraid to ask the simple, important questions like, “how do you make money from me?” Listen to their answer and think about what you’re paying for and what you’re getting in return — it might be worth it, it might not. (Hint: if it’s anything other than a clear, simple fee, it’s probably not.)
The best analogy I’ve heard to describe this dichotomy is that a broker/dealer is like a butcher who will never tell you that you shouldn’t eat red meat when she’s trying to sell you a steak. A fee-only fiduciary, on the other hand, is like a nutritionist who will look at the whole picture and recommend a diet that’s right for you — maybe with steak, maybe with veggies, and, who knows, maybe with Cheetos. (I’ll take the Cheetos, please, which explains why this is not a blog about nutrition.)
Whatever route you take, whether investing on your own or asking for help, know that you’re on the right track! This will be an evolving, learning, and growing process, it involves plenty of risks and discomfort, and you’ll make some mistakes along the way. That’s OK. Take a deep breath and dive in when you’re ready.
This is the last post in Investing 101 and hopefully there’s enough here to get you started. At some point there will be a 102, and maybe a 103, and so on (Counting 101 not included). In the meantime, send me your questions or post them in the comments and I’ll cover what I can in my question-and-answer posts, From the Pie Hole. Good luck out there!
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