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I’m constantly asked about the topic of hiring and working with a financial advisor. I’m asked how to find a good advisor, what makes a good advisor, and how to know if you have a good one.
I’m also asked how anyone with morals or scruples could ever be a financial advisor, why anyone would ever need or want to hire a financial advisor, and how a financial advisor’s fees could possible be justified.
I hear from both sides of that debate constantly.
I’ve wanted to bring you a show on the history of financial advice and open up to you some insight into the business of financial advice. It’s finally here!
Today, we have an interview with Michael Kitces MSFS, MTAX, CFP®, CLU®, ChFC®, RHU®, REBC®, CASL®.
Michael is a leading voice and influence in the financial planning profession. He has worked in all practice models of the industry including the traditional commission model, a blended fee-and-commission practice, and he currently serves as the Director of Research for Pinnacle Advisory Group, a private wealth management firm located in Columbia, Maryland.
Enjoy today’s show where we discuss, without reservation, the business of being a professional financial advisor!
Joshua
p.s., since I know some of you will probably chuckle at the silliness, this is probably a conversation between two of the most over-credentialed people in the industry. I guess both Michael and I are both decent at taking tests. You’ll have to judge for yourself if it matters or not, but between “Michael E. Kitces MSFS, MTAX, CFP®, CLU®, ChFC®, RHU®, REBC®, CASL®, CWPP™” and “Joshua J. Sheats, MSFS, CFP®, CLU®, ChFC®, CASL®, CAP®, RHU®, REBC®,” I think we’ve properly supported the financial education industry. The American College, University of Tulsa, CFP Board, and Wealth Preservation Institute can be proud.
Links:
- Michael’s About Page and formal C.V.
- Michael’s “Nerd’s Eye View” blog
- The Kitces Report: CE for financial planners
- Sophia Bera, founder of Gen Y Planning
- Matt’s firm, Mom and Dad Money
- Jared Reynolds, Financial Planning for Bass Fishermen
- Kitces.com
- Pinnacle Advisory Group, Inc.
- JobsFP.com – job placement for financial planners
Hi Joshua,
I am a Virginia Tech financial planning student and absolutely love your show. I listen to it on my runs 2-3 times a week and always learn something new. Your material is supplemental to my education as a student graduating in May and helps me better understand the industry while I start applying for jobs. THANK YOU! This particular podcast on the history, current issues and ideas for the future is much needed as it provides clarity and offers valuable insight in a confusing and rapidly changing industry.
I look forward to visiting your site every day and seeing what new topic I can learn about. I hope more students catch on and can learn as we bring new talent to the industry!
I’m glad to hear that, Camille! It’s an exciting time in the industry but the change is happening faster and faster than ever.
Make sure you spend time reading the archives of Kitces’ blog. That will really help you massively to have perspective on the industry.
Joshua,
I finally got to sit down and listen to this episode which I did with great interest, given my bad experience with the financial advice industry. I think you two did an excellent job of breaking down the financial advice industry and the many conflicts that exist. You are doing a great service to your listeners to help and educate them.
After listening to the episode I still don’t think there is a good option for using a financial advisor for anyone with a low net worth and in the wealth building stages, where having a great advisor/teacher would be very beneficial. Even if there was an amazing advisor looking to serve people in this space, it would be very hard for them to make enough money to survive while serving their clients best interests in any of the existing models, IMO. And even if that advisor existed, how would a client know what to do to look for them without spending a great amount of time on due diligence? I’ve shown with my example (episode 97) the outcome of not spending the time and simply going off of a very trusted referral. If spending the time to research the advisor, I feel it is easier and more profitable to simply research the topic you need the advice on and then do it yourself.
That being said, I think you are on to something with this show. The key to being able to serve low net worth people and making it yourself as an advisor is scale. A fee only advisor would typically struggle to keep a steady income b/c the client would have an incentive to not seek their advice and it is difficult for an advisor to charge a reasonable fee because he would have to cover all the time he spends on client acquisition as you pointed out. However, if you could use your show and build its popularity, doing something you obviously love, to build overwhelming demand without spending time and money marketing yourself in less desirable ways I would imagine you could build a nice fee only practice with followers lining up for your services as specific needs arose. You could then serve them as needed, without any unnecessary recurring fees and without selling them anything which I feel is by far the best model for the consumer because it eliminates the biggest conflicts of interest. I know I would be interested in your services in this model.
Thanks for the comments, Chris. It’ll be interesting to see how things develop in the coming years. There’s certainly a need for better communication between the financial advisors and the general public.
I do think shows like this or other forms of creating genuine, authentic relationships are part of the future for financial advisors’ practices. I don’t see any possible way for an advisor to do a show as frequent as mine, but I do think that a weekly show or a more static set of virtual “classes” could serve an advisor well to tell their story to the general public prior to the engagement.