The Guide to Working with a Financial Advisor
You’ve worked hard to accumulate some degree of wealth. You want to make sure that your resources are being managed intelligently – in a way that benefits your goals. Regardless of whether the capital markets are volatile or stable, you want to ensure that you’re making wise decisions with your money.
So, you’ve begun to consider working with a financial adviser. But you have some questions, first.
You’ve come to the right place.
My name is Will Hicks. I started my career in finance over three decades ago on Wall Street, in 1986, where I went on to be voted an “All-Star Analyst” by the Wall Street Journal.* Since 2003, I’ve been living in the Seattle area, which is where I founded Sapling Wealth Management, an independent, boutique investment firm specializing in financial advisory services. I’ve been in a wide range of sectors in the industry, and I have a thorough understanding of the hopes and fears that people associate with financial advisors.
Honestly, the best way to determine whether an adviser may be right for you is to schedule a consultation. Most advisors offer a first consult for free; this will give you a good start toward understanding whether a relationship with them will be beneficial.
To help you clarify your understanding of investment advisers at a general level, though, I’ve compiled answers to many of the most frequently asked questions I receive. They’re all covered here. We’ll look at questions like:
- What is a financial adviser?
- What is the difference between a financial adviser and an investment adviser?
- What’s the difference between an investment adviser and a financial planner?
- What does a financial adviser do?
- How much does a financial adviser cost?
- Is a financial adviser worth it?
- What questions should you ask a financial adviser?
- What questions should you ask yourself?
- What is working with a financial adviser like?
- How can I get started with a financial adviser in Seattle?
As you consider how to intelligently manage your money and whether a financial adviser may be helpful toward your goals, I hope you find this information useful.
Ready to get started? Let’s dive in.
Please keep in mind that this is for informational and educational purposes only. Nothing in this post should not interpreted as financial advice, or a recommendation to buy or sell a security.
- William G. Hicks did not pay any fees to the Wall Street Journal or Zacks to be included in this ranking.
- The award category was for Hospitals and HMOs (Healthcare Services). Only one analyst was determined to be the most accurate of 41 healthcare service analysts ranked (2.4% of total analysts ranked).
- This award does not evaluate the quality of services provided to the client.
- This award was based on the accuracy of individual company earnings estimates relative to other research analysts in 1996.
- The data used in the analysis was determined to be accurate by the Wall Street Journal; however, not all data was considered to be eligible for analysis and this could have affected results.
- The award was based on average earnings estimate accuracy; individual company estimates may have differed more or less than the average estimate.
- The award is not indicative of future performance.
- The Wall Street Journal and Zacks Investment Research conducted the survey.
What is a financial adviser?
A financial adviser is a generic term. Most commonly, it refers to a professional who offers customers guidance on considerations related to money.
Investopedia elaborates on the services of financial advisors, noting that “Financial advisors, or advisers, can provide many different services, such as investment management, tax planning, and estate planning.”
It’s important to note that financial advisors must have certain certifications depending on the services they offer. For the purposes of this page, we’ll hone our focus toward investment advisers and wealth management advisers. These are some of the most common applications under the generalized term.
What is the difference between an “investment adviser” and a “financial adviser”?
The term “financial adviser” is often associated with people who work for broker-dealers. Broker-dealers are companies that are licensed to sell securities. In the past, the term “stockbroker” was used to describe someone who worked at a broker dealer selling securities. But the “stockbroker” or “broker” terms have became dated, and more often these agents are now referred to as “account executives”, “financial advisers,” or “financial consultants.”
The technical legal term for this job is “registered representative”.
While both investment advisers and registered representatives tailor their investment advices to individuals, they are not regulated by the same professional standards. While investment advisors are held to a higher “fiduciary” standard, registered representatives only need to meet a less stringent “suitability” standard.
What is the difference between the “fiduciary” and “suitability” standard of care?
The fiduciary standard is the highest level of care in the financial service industry. It consists of a duty of loyalty and care to the client. For example, investment advisers must always place their interests below that of their clients. The client must always come first.
As strange as this sounds, in the world of financial services, current regulations do not require this to be the case. Broker-dealers and registered representatives that work at those firms must fulfill a “suitability” obligation. Under this obligation, if the registered representative believes that the product or service is suitable and benefits their client, they have satisfied the suitability standard.
For example, a registered representative can sell a client a mutual fund with a high commission (which benefits the broker-dealer and registered representative) if the investment is “suitable” for the client. This arrangement passes the suitability standard as long as the transaction and commission fees are not excessive. However, under the fiduciary standard, the investment adviser is expected only to use the lowest cost option for their client to purchase a specific product or service.
I believe that in most cases, the fiduciary standard better aligns the economic and financial interests of the client and service provider.
What is the difference between wealth management and financial planning?
Financial planning is a point-in-time analysis of a client’s financial situation – retirement assets, life insurance, annuities. As such, the fee structure for financial plans is typically episodic (per plan). While it can be an ongoing relationship (annual check-ins), it usually does not involve continuous investment advice. Financial plans can be cost effective investment advice for individuals who like to implement and monitor the investment process themselves.
Wealth managers both create a comprehensive financial plan and manage the financial process to achieve the objectives of the client. Wealth management services are most appealing to those people who want to outsource both the analysis and ongoing implementation of their personal financial strategy.
What does a financial adviser do?
We’ve touched on the services of financial advisers briefly in reviewing the definition of the role. Now, let’s unpack the services further.
At a general level, financial advisers can help you do three things: assess your current financial situation, create a plan to reach your financial goals, and help you carry out a plan via asset management.
Most financial advisers start with an assessment. The nature of the assessment will vary depending on your needs – for instance, if you’re considering an advisor to help you manage a real estate portfolio, their assessment would likely be focused there. In general, though, an advisor will help you to collect all of the financial information you’ll need to better understand your situation.
After assessment, an advisor will help you to create a plan. Its contents will vary greatly depending on your goals and context, but it should always be purposed toward your financial objectives. Common components of a financial plan include asset allocation strategies, budget creation, and risk profile adjustment.
In other words, your advisor will create a roadmap that helps you allocate your money intelligently.
Finally, financial advisers who are wealth managers also manage client portfolios. This means that they will actively adjust your portfolio in an attempt to generate returns and manage risks in ways that align with your financial goals. They will buy and sell assets and securities on your behalf to support your objectives.
Note that all three components apply to any area of finance. You may have an adviser help you with insurance, retirement, real estate investment, or tax strategy. In each area, though, their general services are the same: assessment, planning, and management.
How much does a financial adviser cost?
This is a common question, but there isn’t a fixed answer to it, because the cost of a financial adviser is variable based on a wide range of factors. We can offer some guidelines to thinking about costs, though.
To understand how much a financial adviser might cost, we have to first define the methods by which financial advisers are paid. There are several frameworks advisors use to set costs.
The most common method is to collect a fee that’s a percentage of assets under management (AUM). Typically, these fees range from 0.25% to 1.25% of AUM – depending on the level of service and account size. Generally, the larger the account size results in lower AUM %. Under this framework, if you have a $1,000,000 portfolio and your investment adviser charges 1.0% AUM fee, the annual fee would be $10,000.
Another common method is to collect a combination of an % AUM and a flat retainer fee. This is a typical arrangement when accounts size is lower, but there still is a significant amount of time spent with the client managing and planning finances. Many low net worth individuals who are starting to build their personal wealth opt for these structures.
Some advisors may charge hourly rates. Most often, hourly rates for financial advisors start at $200 per hour and increase depending on factors like experience, focus area, and AUM.
Financial plans can also be structured under fixed fee format. (I structure almost all of my financial plans this way).
Finally, some investment advisers are compensated for the performance of the portfolios they manage. These fees are always contractually agreed upon ahead of time.
So, as you can see, there’s no hard number for how much an investment adviser might cost. The good news is that you can almost certainly find an investment adviser to meet your needs, no matter your budget.
At Sapling Wealth Management, I offer services under a few different pricing models. For financial planning only (which involves three to four meetings and approximately 15-25 hours of assessment on my end), payment is $1,500 to $4,500 per plan. For advice (including a financial plan) and money management, I offer services under a $150 monthly ongoing retainer and a flat 1.0% fee of AUM. For individuals with liquid assets over $500,000, I offer a sliding fee for AUM.
Is working with a financial adviser worth it?
This is the million (or more) dollar question: is good investment advice worth the cost?
Well, it depends on how you define good.
I believe that a great adviser takes the time to understand the client’s needs. This may involve investment strategy, tax planning, financial planning, estate planning, risk assessment and legacy issues. When you add up all the different areas that could be meaningful, the impact can be very large. I discuss this at length in this blog.
Vanguard, who I believe is the undisputed leader at pushing unnecessary costs out of the financial system, published a study that concluded implementing standard wealth management techniques could increase certain client’s effective investment returns by up to +3.0% annually. Over a period of 20-years, this could add up to a portfolio that has a value 60% higher.
The problem with this analysis is that everyone is different. Some will not save as much in tax strategies, as they may not have as high an effective tax rate. Others do not need as much behavioral coaching in order stick with their long-term investment goals.
But it is even more nuanced than that. For instance, what if an investment adviser recommended that you purchase life insurance and transfer this risk to an insurance company? This may decrease your wealth (through higher insurance expense). In most cases, life insurance is never used. However, was it good advice?
Or, alternatively, what if you have been a diligent saver your entire life and have accumulated sufficient retirement wealth to be comfortable? There are many times when I recommend that my clients decrease their investment risk (lower annualized returns) to produce a more stable portfolio. In some instances, my analysis gives them permission to spend more money on themselves, so that they can enjoy life to the fullest.
So, using an adviser certainly can be worth it. While this is true in any context, generally, the more complex your financial situation, the more value you’ll find in working with an adviser.
Yet is runs a little deeper than that, as I believe I can help my clients to live better. I acknowledge that I may be a bit biased.
What questions should you ask a financial advisor?
If you believe that working with a financial advisor could be valuable for you, you should begin to consider how to find the right professional to meet your needs.
To do this, you should seek to get an understanding of how a financial advisor works by coming prepared with questions. Here’s what to ask.
1. Are you a fiduciary?
As we’ve discussed, a fiduciary is legally bound to put your interests first. Advisors who are non-fiduciaries can recommend investments that are “suitable,” but may end up costing you more.
2. How do you structure your costs?
Obviously, it’s important to know how your advisor will structure their pricing. You should look for advisors that are “fee-only,” meaning that they don’t receive commissions from selling products. Fee-only advisors may charge percentages, flat, or hourly rates.
3. What are your qualifications?
You should check with your advisor to see what degrees, licenses, and registrations they hold. These qualifications will help you to determine their credibility and show you the range of services they may be able to provide.
4. What is your investment philosophy?
There are a range of different approaches to investing, and different financial advisors subscribe to varying philosophies. Ask this question, because it will impact the strategy your advisor provides. Some advisors may opt for efficiency and match you with more packaged services. At Sapling Wealth Management, however, I take a proactive approach in delivering thoughtful, tailored advice that factors in each client’s long-term goals and financial risk tolerance.
5. How will we communicate?
It’s also helpful to know the approach your advisor will take in communicating with you. Some investors prefer a hands-off approach – assuming there is trust built up with an advisor, they aren’t interested in hearing about their portfolio frequently. Others, though, want to be kept in the loop on all things as much as possible. For most people, connecting with an advisor once a quarter makes sense. It will also make sense to schedule a more formal check-in at least once a year.
6. How will you measure success?
Your advisor should define success according to your goals. In fact, they should be able to help you more clearly understand what meeting your goals might look like. They should be able to maintain a big picture view, factoring in things like diversification and overall portfolio performance over rates of returns on specific investments. Ask what benchmarks they use (i.e. the S&P 500) to measure their results against.
What questions should you ask yourself?
I believe it is critically important for client’s to be reflective of why they want to work with an investment adviser. Things you need to consider:
1. Why do you need this service?
Some of my happiest clients are financially savvy. They just don’t have time to do the work themselves. Other clients don’t know the difference between a stock and a bond and have no interest in learning. However, most of my clients are informed financially, but want to learn more. Therefore, it is valuable to understand why you are seeking this service and what you want to get out of it.
2. Is the prospective investment adviser someone you can trust?
There will be a point in your relationship where an investment adviser will look you in the eye during a period of financial volatility and say: “Buy”. It will likely take a lot of courage to stick with an investment philosophy to get through those difficult periods.
3. Is the investment adviser likeable?
You will likely be spending a considerable amount of time with the adviser discussing your personal thoughts and objectives. I believe you will get more out of the service is you think you would enjoy spending time with this person.
4. Is your personality compatible with an investment adviser?
Occasionally, I have people come to me that do not want to lose control over the investment implementation and monitoring process. Therefore, I believe they shouldn’t. In these cases, a financial plan may be all that is necessary. Alternatively, you may value having a trusted adviser to call and use as a sounding board on key financial decisions. Think about the level of service that is right for you.
What is the process of working with a financial advisor like?
Finally, let’s take a look at the process of working with a financial advisor. If you do work with an advisor, what will that entail?
Some of this we’ve covered already, but let’s break things down in a bit more detail.
1. A financial advising engagement begins with assessment and planning.
At Sapling Wealth Management, all of my individual financial advising engagements begin with planning. Most often, this involves a series of 3-4 meetings where we discuss your needs, current financial context, and objectives. On my end, plan creation involves a good deal of analysis. I typically spend 15-25 hours analyzing client data and formulating a strategic plan.
2. Engagements that include asset management involve documentation and facilitation.
If there will be assets under management, the next step is to functionally make that happen. I work with my clients to facilitate all of the needed documentation and ensure this process is seamless.
3. Engagements include regular communication and reporting (depending on client needs).
In terms of engagement communication cadences, to some degree, the frequency of contact is up to the client. However, as mentioned above, a quarterly touch-base is a good place to start, and you should certainly have a formalized annual review. More frequent communication can be had at your discretion, based on your needs. My clients are always welcome to contact me, anytime.
In general, tailored advising services will involve more accessible communication, while more packaged services will involve less.
How can I get started with a financial advisor in Seattle?
If you’re ready to take the first step toward working with a financial advisor in Seattle, the best thing to do is schedule a free consultation.
I recommend that you speak to a few advisors before you pursue a relationship. Most financial advisors offer a free consultation upfront, and you’ll be able to ask questions (like the ones I’ve listed above) to determine whether they’re suited to your financial goals. You’ll also have the chance to see if they’re a relational fit.
Working with a financial advisor is an investment in itself. You should take a big-picture approach to this, with the knowledge that a good advisor can be a long-term partner in helping you realize your objectives.
If you’re ready to get started, I’d love to talk to you. Just fill out our form online to schedule your initial call.
What Seattle areas do you serve?
As you move forward, I recommend finding a local provider. There’s value in face-to-face interaction, and a local relationship can make communication easier. At Sapling Wealth Management, I provide advisor services for individuals throughout the Seattle region, including within the following areas:
- Aurora-Licton Springs
- Beacon Hill
- Bitter Lake/Broadview
- Capitol Hill
- Chinatown-International District
- Columbia City
- Crown Hill
- Downtown Commercial Core
- First Hill
- Green Lake
- Greenwood-Phinney Ridge
- Judkins Park
- Lake City
- Morgan Junction
- North Rainier / Mount Baker
- Pioneer Square
- Queen Anne
- Rainier Beach
- Sand Point
- South Lake Union
- South Park
- University District
- West Seattle Junction
- Westwood Village / Roxhill-Highland Park
- 23rd & Union/Jackson
And more. In other words, if you’re within the Seattle region and you’re looking for a financial advisor, let’s have a conversation.
Take the first step.
I hope that the information above has been helpful as you’ve investigated the function of a financial advisor. Take the first step intelligent planning and money management by getting in touch today.