In today’s episode Jason Pereira talks to his friend and colleague John DeGoey. Together they are going to discuss “What to look for when hiring financial advisor? John is a well-known pundit in the industry and author of several books, specifically - The Professional Financial Advisor.
Episode Highlights:
- 00.56: John has been an advisor for 28 years. He has written a couple of books and articles. He is a proponent of professional, transparent financial advice in a way that is consumer centric.
- 1.46: Jason asks, “Consumers looking to hire an advisor, what should be their first steps? What they should be doing and how that can go in and out.“
- 2.01: John says, the first thing that consumers should think about hiring an advisor is what your expectations are from that advisor and find an advisor who works in your snack bracket with the specialization that might respond to whatever specific concerns you have.
- 3.18: Many people tell you that they deal with business owners or executives or people with money. Jason recommends you go further and ask questions about specific services that are tailored to those people. Ask the advisors to prove it by telling you what you do for me that is different than others.
- 3.44: John says, you can't ask questions if you don't know what questions you should be asking.
- 4.19: Jason always recommends, “Don't just take your friend's word for it because your friend could be happy with someone terrible.”
- 4.52: John says, if the advisor is only giving product recommendations without thinking about strategy or fit or planning and specifically if those recommendations are being made without doing anything to really determine what your circumstances are in the first place, then people might assume, well, this is a person who is just fresh out of university and starting out and needs to do some work with budgeting.
- 6.39: The conversation or the desire for advice is driven typically by the perceived need around a product or solution.
- 7.26: Many people when the penny drops, and they realize they need something. They rush out to find someone to help them deal with that one thing they have determined they need help with.
- 9.27: John suggests, “Look for a person who when start asking you questions, asked to follow up questions first derivative questions that the next question is not on their pre-existing list of questions to ask but close directly out of the answer that you gave and because you said something that triggered something in their mind, they then went back to you and said so tell me more about this to make sure that they are understanding the situation and determining whether or not you might need more help with that thing.”
- 10.18: Jason inquires, “Can you speak to the kind of credentials individuals should be looking for when they go and seek advice?”
- 10.23: John says, “The first thing that I would say is you might want to look at licensure. About 85 or 90% of the people who give advice are not licensed to sell individual stocks and bonds. They only have a mutual fund license and or a mutual fund insurance license.”
- 11.59: Everyone has to be fiduciary, but if you are working with a portfolio manager, all portfolio managers are also fiduciary by virtue of being a portfolio manager are also fiduciary and that's one thing that provides comfort to many people.
- 12.49: Jason asks, “When it comes time to ask what is all costs? Where are the red flags? Or what should people expect?”
- 15.02: John says Industry has not been consumer friendly because there are certain lobby groups within the industry. The total cost for the client is the sum of the product, the advice and those additional transaction charges in custody fees.
- 16.32: If an advisor is telling you verbally and they don't have like a fee schedule spelled out in front of you then it's another issue here that a lot of people don't think about it.
- 17.11: Jason points out that, “You can't be assured that you are getting as good a deal as everybody else that this person is dealing with and that's something if you don't have someone who's got a clearly defined fee schedule that they can lay out in front of you, you are a danger to that.”
- 20.15: The saying that we all have heard that price is what you pay value is what you get, says John
- 21.22: If you are getting good advice and paying for it and but you are also using expensive products and paying for that and those products are not adding value, then the sum total of the value add or subtract is going to be convoluted because it will take more than one factor into it.
- 23.33: We don't know how good a job we can do for someone until we actually start doing the plan and that's the reality of the real estate industry, says Jason.
- 26.25: John says, a lot of implementation revolves around trade-offs, because there is only one course of action and that is fine. But almost always you have to decide about whether we will travel less or work longer, but we don't retire early and still travel as much as we wanted to.
- 29.49: As per Jason another red flag that comes up quite often is the telling – “You need to do something with your investments before they even understand you.”
- 30.53: Jason says, it is really easy to score a bullseye when you paint the circle around the arrow wherever it landed. But the reality is that short of being able to prove they would do that, those comparisons are nonsense, and no one should ever take him to credibility with them.
- 33.09: There is a book that came out about two months ago called noise. The concept of noise is one of the main concepts something called decision hygiene, which is basically being clear, inconsistent and purposeful in your decision making.
- 33.25: If you are going to interview multiple candidates for the job of being your advisor, it might be worthwhile to at the outset at the beginning of the process before you interview any of them. Think deeply about what you hope to accomplish, think about the questions that you heard us talk about, write them down, and make sure that you asked all the candidates you are interviewing the same questions so that you can compare them.
- 36.15: If the client wants a comprehensive service and all you care about is investing their money in mutual funds, that is a relationship doomed to failure.
3 Key Points:
- Find an advisor who will step back and encourage you to do a holistic assessment of your actual needs so that the response you're given can be as fulsome as necessary.
- There are multiple levels of fees, and if the advisor is not clear about the multiple levels of fees, then there is a concern. What you should ask is a breakdown in writing. This should not be a surprise if the advisor doesn't have an answer ready for you and in writing right there because it's a basic question.
- If you have a question about, what kind of return should I expect? You should speak to multiple advisors. In most instances it's a reverse indicator, and the advisor who sets the expectation the lowest is likely the most credible.
Tweetable Quotes:
- “Don't presume and don't work with advisors that are quick to person.” - John
- “If the client wants to negotiate, that would be a red flag for the advisor, because the client wants someone who is less than professional and more sales.” – John
- “The media is largely beating up on fees because cost is a simple story to tell people that gets people enraged and gets clicks. Media, in general, is a terrible job of explaining to people the value of money in this industry.” - Jason
- “The competency of a planner is very difficult to gauge in advance, and that requires a lot of conversation and questioning as well that people may not be ready for.” – Jason
- “Somewhere in the spending or the goals there is a malleable goal that is not important, and that thing can be shifted around for the sacrifice of everything else.”
- “Having a purposeful process is a good way of imposing discipline on your decision-making.” - John
Resources Mentioned
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