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How can you trust a financial adviser if you don’t know what you’re getting into?


Over the years Pam Krueger hosted the MoneyTrack show on PBS, listeners constantly told her that they feared going to see a financial planner so much that they put it in the category of going to the dentist or to see a divorce lawyer. 

“They’re so intimidated in that first meeting. They feel they’re going to be judged and so they’re hesitant to even start a conversation,” says Krueger, who recently created a network of vetted fee-only financial planners called Wealthramp and also co-hosts the Friends Talk Money podcast. 

This fear of the unknown keeps many who could benefit from financial planning from seeking it out. But what if there was a way to know what you’re getting into? 

One financial planner, Cody Garrett, put his entire process online for educational purposes, mostly for the benefit of training other financial planners through his Measure Twice Planners services, but also to provide some transparency for clients. “We can’t expect the public to value financial planning if they don’t know what it looks like,” says Garrett, who is based in Houston. 

The videos available free to the public shed light on exactly how the process operates. It’s not flashy or complicated, but it is thorough. Garrett says he looks at every paper you have with a number on it, digging past the first summary page to the small print. He walks through how to look at a tax return, insurance coverage, an income sheet and he talks about strategies for retirement spending, Medicare and some simple investment education. 

“I know it’s overwhelming, there’s so much information,” says Garrett. “But you have to go beyond the basics to truly align to a client’s best interests.”

It takes two to collaborate

Financial planning is a service-based professional industry, but it’s one that requires a great amount of effort from the client. You have to collect paperwork, listen and engage. There’s sometimes homework after meetings. That’s one of the disconnects that has traditionally kept people from seeking the help they need or from being frustrated once they start the process

“People don’t have expectations about how to work with a financial adviser because nobody has made it clear what the expectations are,” says Krueger. “But really it’s about collaboration. And for that, there has to be transparency.”

One way to enhance that collaboration is more interaction. A recent survey from Edward Jones, a financial services firm, found that people are craving more contact with financial advisers. Since the start of the pandemic, 76% of advisers increased engagement with their clients, with only 4% communicating via the traditional quarterly review. Instead, 42% were communicating weekly and 44% monthly. 

“It’s now one of the things we talk about when we do our discovery meetings with a new client, how often they want to meet,” says Jesse Abercrombie, a financial adviser at Edward Jones. “What’s great is the technology we use now lets clients see their goals and progress whenever they log in. In the old days, there was just a binder they received. Now, every time they log in, they see their financial plan online.”

What are you paying? 

The real black box with financial planning is knowing exactly how much you’re paying and what you’re getting for your fee. Abercrombie, for instance, works for a firm that mostly charges based on a percentage of assets under management. That means the fee is different for every client and changes as assets ebb and flow. “It’s generally 1.2% of assets under management, but I can’t say that’s the fee for every client. If they have $10 million, it’s a lesser fee,” says Abercrombie. 

Others, like Garrett, eschew the percentage model for flat fees or project fees. “I’ve met so many financial advisers who are charging 1% on $2.5 million, so it’s $25,000 a year. If I told a client they were paying $25,000, they would fire me,” says Garrett, who charges a flat-fee of $6,400 for a three-month engagement. 

Krueger works with advisers who have many compensation models, but all fall under the framework of “fee-only” which means they don’t earn commissions for selling specific products and services. She says most of the people who seek an adviser through the Wealthramp network try to avoid the assets-under-management model. One situation in front of Krueger now is a 50-year-old doctor who has medical student debt. She has $800,000 with an adviser whose fee is calculated based on assets and she wants to know if she should pay off the debt. She’s afraid the adviser is going to be tainted, because he doesn’t want the portfolio cut in half, which cuts his fee in half. “There’s perceived conflicts of interest,” says Krueger. 

To get set up on the right track, Krueger suggests asking two questions of a potential financial adviser. 

  1. Who are your typical clients and what are you doing for them on a continuing basis? 

  2. How are you paid? 

If you don’t know this information, “it’s like getting married on the first date,” says Krueger.

More from Beth Pinsker



This story originally appeared on Marketwatch

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