Jay Thompson is a former brokerage owner who spent six years working for Zillow Group. He retired in August 2018 but can’t seem to leave the real estate industry behind. His weekly Inman column publishes every Wednesday.
In this recurring column, Inman hosts various contributing writers who share personal and business finance insights they’ve picked up throughout their careers to help agents and brokers stay financially fit.
There’s a popular saying in real estate. It helps people understand the importance of using a professional in a real estate transaction. We’ve all heard it, probably used it in one form or another.
The saying goes something like this: “A home may be the single-largest financial investment you’ll ever make. You need a professional to guide you through the process.”
There is a lot of sage advice in that thread. As real estate pros, we know an investment the size and complexity of a home purchase or sale shouldn’t be handled alone. Going the for-sale-by-owner (FSBO) really doesn’t make sense — saving a few dollars now can easily cost you more in the long run.
You know what else is big, expensive, and fraught with ongoing trials and tribulations?
Your life. Retirement planning. Personal finances.
Just as a real estate pro can help you wade through the complexities of buying a home, a financial adviser can help you wade through the complexities of your financial life.
I wonder if there are Facebook groups full of financial planners talking about how crazy people are for trying to save a couple of bucks by skipping over good representation.
Can’t you just imagine it: “Oh these people. Don’t they understand that planning for your financial future is arduous, complex and one of the single-largest financial moves they will ever make? They’re not saving money, they’re gaining liability! Can’t they see how important this is?”
What does a financial adviser do?
The three main types of service financial advisers offer include:
- Financial planning focuses on all aspects of your financial life such as how much to save, what type of insurance you need, usage of cash versus credit, etc. It is not just about your investments.
- Investment advisory services are focused on investment management functions such as what investments to own in which accounts.
- Retirement income planning is focused on how you coordinate all the pieces such as social security, taxes, investments, pensions, retirement date, etc., so they all align toward the goal of delivering a retirement paycheck for life.
Where you are in life has an impact on what you need from an adviser. Someone who is 30 has very different needs from the 55-year-old who’s retiring in a few years. Most planners cover all of the above, but there are specialists as well.
How these services are provided is usually broken down as follows:
- Hourly consultation: You have questions around a specific financial situation such as buying a house, going back to school or selling a business. The best option for you is an adviser who provides hourly consultation. They charge an hourly fee, and should be able to give you a total cost estimate upfront based on the scope of work needed.
- Comprehensive financial planning: You need a professional to create a one-time roadmap to reach your financial goals. You want to them to look at everything: insurance, education, investments, retirement, etc. Advisers charge either an hourly rate or a flat fee for a comprehensive financial plan based on the scope of the project.
- Asset management: You want a long-term financial partner. An asset manager will invest and manage your money and provide continuous comprehensive financial planning throughout life’s many changes. They charge a percentage of the assets they manage for you.
How do you choose a planner?
Go online, and google “financial planner directory.” You’ll be presented with dozens of options, including entire search engines dedicated to nothing but finding financial planners.
Your Facebook stream will soon start filling up with smiling faces offering you all their amazing services.
Sound familiar? It’s remarkably similar to what happens when people start looking for a real estate agent.
Most people hire an agent for one real estate transaction. If the agent is good, that client will use them again in the future.
Although single services are available from some financial service providers, most people typically hire one for life. Although that’s different from hiring an agent, many of the principles remain the same.
Searching for the one
Here’s how to vet a professional who’s right for you:
Your friends and family are good resources. Ask them who they use. Understandably, many people don’t want to mix finances with friends and family, so also look for referrals from people who aren’t close friends but might interact with financial types — your CPA, an attorney, your favorite Inman columnist.
Look for certifications
Much like real estate sales, there is a seemingly endless list of designations a financial planner can obtain. Also much like in real estate, some of those designations are meaningful, worthwhile and helpful in choosing who to work with — and some of them are worthless.
The Certified Financial Planner (CFP) and Chartered Financial Consultant (ChFC) designations are legit. Both have experience and education requirements and background checks. Extensive testing is required to earn these designations.
Understand pay type
Understanding how your planner gets paid is important. Some planners’ income is solely derived from commissions based on investment products they sell you.
They make more money based on what they sell you, so there is an inherent conflict of interest. Other planners are fee-based. Income is derived from both advising fees and commission from selling investment products. Conflict of interest concerns remain.
Finally, there are fee-only advisers. Fee-only advisers have a fiduciary duty to act in the best interest of their clients. They only make money through flat fees, hourly rates or a percentage of the assets they manage. Hopefully, there is no need to tell a real estate agent about the importance of the fiduciary aspect.
Search for a personal fit
For years, I’ve been preaching the mantra that people chose a real estate agent because they like and trust them. The same can hold true for a financial planner.
If you’re looking for a one-off report or consultation, maybe it’s not so important.
If you’re looking for an asset manager, you’re looking for a life partner, and how you mesh with them is crucial. I genuinely like my financial planners — they are good people who enjoy life. I trust them, and because they’re managing my investments, that trust is crucial.
Ask the right questions
Just like anyone searching for an agent, you should interview multiple candidates for this important role in your life.
Some questions to ask while interviewing financial planners:
- Are you a fiduciary?
- What certifications and experience do you have?
- What services do you offer?
- What types of clients do you specialize in serving?
- How do you make money?
- What’s your investment philosophy?
- Have you worked with the self-employed?
- How often do you communicate with your clients?
So many people wait too long to plan for the future. I wish my 25-year-old self had been more financially aware.
On the financial scale, you likely fall somewhere between destitute and independently wealthy. I have no clue about your financial situation, but I do know that you need to understand your finances and how they will impact your future.
Just talking to a financial planner in my youth might have made a massive difference. It’s never too late to look at your finances and plan for the future.
Reach out to a financial planner. Most will do an initial consultation for free. Understand what they do and how they can help you. Everyone, especially the self-employed, could use financial advice. That dollar you save or invest today might pay for something very important years down the road.
Don’t FSBO your financial future, seek professional help.
Jay Thompson is a real estate veteran and retiree in Seattle, as well as the one spinning the wheels at Now Pondering. Follow him on Facebook, Instagram and Twitter. He holds an active Arizona broker’s license with eXp Realty. “Retired but not dead,” Jay speaks around the world on many things real estate.