5 Tips to Know When It’s Time to Fire your Financial Advisor (And How Hourly Planning Can Help)

Theoretically, the main job of every Financial Advisor should always be to put the interest of their client above their own. Since they were hired to generate value for their client. Still, we see that sometimes, theory must align with practice.

When looking for a Financial Advisor, many people ask: Are you a fiduciary advisor?

But not all people know what it means to comply with the fiduciary criteria. So let’s start by describing where this word comes from:

According to its origin Fiduciary comes from the Latin word “Fiducia,” which means trust and security.

Given that the fiduciary criteria is rooted in the Latin word “Fiducia”. Which means trust and security, it’s natural to expect all financial advisors to adhere to it. After all, the client is entrusting their advisor with their finances, expecting the advisor to act in their best interests. Unfortunately, this is not always the case.

That’s why in this article. We’re equipping you with the 5 tips that will empower you to recognize if your financial advisor is not acting in your best interests.

Armed with this knowledge, you can confidently make the decision to retain your advisor.  Seek a new one, or even consider a different approach to managing your finances.

1.- They offer you a financial product that combines insurance. Which supposedly has no fees or commissions

It wouldn’t seem strange to you if I told you that I want to sell you a financial product called an Annuity, which has the characteristics that it offers you a guaranteed return, regardless of what happens in the stock market. This will always give you a return and the best of all is that it has no fees or commissions.

Anyone with basic financial knowledge knows that in the world of investments, two laws always apply:

1) The higher the return, the higher the risk, and

2) There is no free lunch; someone will always pay the bill.

Therefore, usually, when your financial advisor offers you this type of product, he should also tell you that with annuities:

• When your financial advisor suggests an annuity, it’s important to remember that they often receive substantial commissions for these sales. This financial incentive could cloud their advice. Leading them to prioritize their own interests over yours.

• Another important point to consider. Is The high surrender or exit fees associated with annuities. Especially in the first 5 to 10 years. If you need to withdraw your money, you could end up losing a significant portion to these penalties.

• In addition to the commissions the seller earns and the exit fees. They could invest your money in mutual funds with high management fees.

Therefore, it is always important that when your financial advisor offers you an annuity. You ask him in writing if he is receiving a commission for selling this product. Please do not be carried away by the promise of guaranteed returns or tax benefits. Because after all these commissions, those benefits often end up disappearing.

2.- He tells you that it is time to buy a life insurance policy with savings plans. Or the so-called Indexed Universal Life Insurance or Whole Life Insurance

The first thing you should ask yourself is: Do I need to have a life insurance policy?

We can answer this question with another: Do you have loved ones or people who depend on you financially? If the answer is yes, in almost 99% of cases, we can tell you that it will be much better for you to acquire a term life insurance policy instead of Universal or Whole Life Insurance.

Term life insurance policies offer you greater coverage at a substantially lower price. And you can contract it for the term you need. Usually this period is either until your financial dependents can take care of themselves. Or until you have accumulated the necessary investments and savings throughout your work so that if something were to happen to you, they would inherit your assets and be covered.

Why are Indexed Universal Life Insurance. Or Whole Life Insurance policies not the best for you in most cases?

The answer is simple: These types of financial and insurance products offer a high commission to your advisor to sell you this policy, which can cloud the financial advisor’s fiduciary judgment.

On the other hand, they tell you as a client that these policies are very good because you will have what is called a Cash Value, which allows you to not only be covered in case something happens to you but also to accumulate savings over time at a very good rate.

This has two fundamental problems. If you see the surrender or salvage value during the first two years, in most cases, it is equal to zero. So, if you retire, you will not receive any of the money you have contributed. This means that you gave money to buy a policy and to save for two years, but if you decide to retire, you will not receive anything.

The main reason why during the first years if you decide that you do not want to continue in an Indexed Universal Life Insurance or Whole Life Insurance policy is that a large part of that money was directly as an incentive to your financial advisor

The second big problem with these types of Life Policies with savings plans. is that the performance they offer after removing all the commissions is really bad compared to other investment schemes.

Therefore, if your financial advisor tells you that the time has come to buy one of these life policies. Think very carefully because perhaps he is not acting in your best interest as a client. Perhaps it is best for the advisor’s pocket, but not yours.

3.- Your advisor only calls or contacts you when he wants to offer you a particular investment.

If when you hired your financial advisor he only gave you a short questionnaire. And at the end of it he tells you that you are a:

Conservative, Moderate or Aggressive client. And then from that information he does not create a specific investment recipe for you, be very careful.

This usually happens especially with financial advisors who belong to one of these large financial groups. Which offer you financial instruments not for what is best for you. But for what is best for the financial group they represent and of course for the advisor’s bonus.

This causes you to have an investment portfolio that does not respond to your financial goals. And to a clear investment policy that should have been given to you in writing. Which indicates how much you were going to have in stocks and how much in bonds. As well as what sub-quantity you were going to have of each of these assets internally.

Rather, you will have a portfolio that will respond to what is in fashion. And with which the financial group will surely make more money. Either because it is an instrument they offer or because it is an investment where this financial group obtains some type of incentive.

Your investment portfolio should be like a baking recipe. Where they tell you that you will have, for example. A share rate and a teaspoon of emerging market bonds. It should be a portfolio that is specifically structured to meet the goals that you have set for yourself over time.

4.- Your investment advisor charges high fees for managing your money. But does not offer any other financial planning services, only manages your portfolio.

The standard average fee for managing your portfolio in the United States is around 1%. We must consider that most financial advisors generally seek to work with clients with assets above $250,000.

It’s crucial to consider the impact of high fees on your investment portfolio. For instance, if your advisor charges you 1.5% per year. And you have about $500,000 with him, he would be earning about $7,500 per year. However, if your money grew at a hypothetical rate of 6% for about 20 years, the total fee that the advisor would have charged you would be approximately $275,000. This is a significant amount that could have been part of your investment.

I am not saying that perhaps your financial advisor has done a wonderful job managing your investments. But I am saying that for this percentage, you should be receiving a series of related services. Or what is called financial planning services.

Financial planning allows you to cover a series of areas that are fundamental to your finances such as:

• • Tax planning : any advisor charging these fees and managing significant amounts of money for you should have asked you for your latest tax return and helped you see if there are areas for optimization.

• • Financial goals : knowing what you need to do to achieve financial independence in retirement and perhaps retire on the beautiful beaches of Palm Beach in Florida, playing golf.

• • Cash flow: in these times of inflation, knowing where your money is going and how you can make it go even further is a priority.

• • Estate planning: a large percentage of the American population does not have a Will nor financial or medical decision powers if something were to happen to them.

If your financial advisor offers you all these valuable financial tools. He is surely not only an advisor. Still, he must be a CERTIFIED FINANCIAL PLANNER™, which are professionals responsible for complying with the fiduciary criteria and ensuring that what is best for you is what is best for you.

CFPs® must periodically complete study hours to continue preparing and take courses on ethical behavior with clients. In addition, they must complete a rigorous study plan and demonstrate that they have the experience to obtain this certification.

We must remember what Warren Buffett says.“Price is what you pay, value is what you get.” So, if you are paying above the industry average of 1% of the balance sheet managed by the advisor. You should also be receiving services that are above average. Not just the investment of your portfolio.

If you do not know how much your financial advisor charges, it is time to ask him in writing how much he charges to manage your investment portfolio.

Remember that this commission differs from the amount you pay for the mutual funds, ETFs or investment products in which your money is invested.

5.- He does not respond to your messages or know how to explain simply where your money is invested.

There is something that the client should always be very clear about, the investment advisor is a professional you are hiring to help you maximize the performance of your money. This money does not belong to the advisor, so at all times you have the right to:

a) Know clearly where your money is being invested

b) Obtain timely responses to your requirements

In particular, the financial industry has wanted to show that the more complex the investment, the better the performance you could obtain. But the great reality is that it is the other way around in most cases. The more complex the investments and your financial advisor cannot logically explain to you how and where your portfolio is being invested. There is a greater probability that you are paying high commissions and perhaps running an unnecessarily high risk.

Many investors have the illusion that the investment advisor will be able to offer them a portfolio made up of exclusive products that they know nothing about, with the promise of being the type of investments that big millionaires use.

But the big reality is that the investment market is extremely large and it would be a bit naive to think that a client with a portfolio of a few million or much less than that amount will be able to access the investment options that, for example, Elon Musk has.

So, if you don’t fully understand what your advisor is investing in and he can’t explain it to you in a simple way without using technical jargon or fancy words, it’s very likely that you might be better off with an investment portfolio in indexes or ETFs with wide diversification and low cost.

On the other hand, there are many cases where we receive clients who complain that their investment advisor doesn’t respond to their messages or that they respond to them just to get out of the way quickly and without responding to their request.

In these cases, it is undoubtedly true that, if the advisor doesn’t have time for you, it is much better that you don’t continue paying him for something as simple as serving his client.

Are you tired of having to continue dealing with Financial Sellers who present themselves as Financial Advisors?

As we have seen throughout this blog, the best way to get your financial advisor to really look out for what is best for you and not for him, is to get rid of financial conflicts.

Understanding financial conflicts of the advisor, when he receives a commission or particular incentive for offering you a financial product or service because another company is going to pay him a fee regardless of whether that is the best for you or not.

Recently there is a new trend that has been born in the financial advisory industry that really manages to offer a service that is 100% fiduciary looking for the best for the client and it is about Financial Planning by Hour.

In Financial Planning by Hour

The planner is hired directly by you who, being your boss, will have the greatest interest in offering you a service that adds value to you because he knows that if he does not achieve this you will not hire him again or you will not refer him to your acquaintances or friends.

Hourly Financial Planning works just like when you hire an Accountant, a lawyer or a consultant. You are hiring them to help you with a specific or general requirement, which can be aspects as varied as:

• • The review of your investment portfolio. And help you create a recipe so that you can manage it yourself without having to pay a percentage commission to an advisor.

• • Maybe you want them to check if you are on the right track to achieve the financial goals you have set. Such as an independent retirement

• • In other cases. You may want the hourly financial planner to help you review your taxes and tell you if there is any point that you should continue to optimize.

• • Or you want them to review your cash flow to see where your money is going, as well as issues of asset protection.

• • As well as the simulation of scenarios to determine if a ROTH conversion strategy or other types of solutions for your retirement is right for you.

What are the fundamental aspects that you should take care of when you are going to hire a Financial Planner who provides services by the hour? 

• • First, make sure that he or she is a CERTIFIED FINANCIAL PLANNER™.

• • Second, ask him or her if he or she receives any type of commission for the sale, suggestion or referral of any financial or insurance product

• • Third, ask him or her to show you what types of reports or deliverables you will receive.

• • Fourth, make sure that you know if a CFP® will assist you directly when reviewing your plan or if it will simply be a machine or artificial intelligence system.

We hope that this information has been useful to you and that we see that the financial advisory industry is changing to offer clients a service proposal where, in the end, the client really is the most important thing.

If you want to know more about how Hourly Financial Planning can help you improve your personal and family finances,