We aren’t taught how to budget or invest in school yet these skill sets are required to live a financially successful adult life.
If this money stuff doesn’t come naturally to you and you don’t know when to ask for help, it can spell disaster.
But there is a lot of different kinds of help out there, and it is NOT all created equal.
One of the most common questions I get asked is how to find a good financial advisor and when you need one versus a money coach? So today, I want to break it all down and give you the exact terminology and financial speak you need to find a money professional that will align with your values and needs.
Money Professional #1: Money Coach
A Money Coach is an emerging profession that focuses on the daily habits and systems that build the foundation for your financial life. That means spending plans, debt repayment, and savings plans. But it isn’t just about the numbers… as a Coach, I also want to look behind the numbers to see what habits, patterns, and emotions are showing up in your financial life and help you re-write those patterns if they aren’t serving you.
Repeating bad financial behaviors passed down from your parents?
A Money Coach can help with that.
Need help putting a customized debt repayment plan together?
A Money Coach can help with that.
Need help getting your arms around your 2 checking accounts, 3 credit cards, and savings account?
A Money Coach can help with that.
If you need help and don’t know where to start, start with a Money Coach. They will be better able to create customized solutions for your needs and get more one-on-one time to help you work through and implement their strategies.
As the Coaching industry is emerging, so are the certifications associated with being a coach. Some coaches have a background in therapy and some have a background in Finance (like me!). Make sure that you have an introductory call with your Money Coach before you hire them so you can make sure their qualifications and specializations are a good fit for your needs.
Need help with specific investment advice? A Money Coach generally does NOT manage this, and you might need a Financial Advisor.
Money Professional #2: Financial Advisor
A Financial Advisor will help you manage your investments, retirement goals, and other long term planning needs.
Similar to any money professional, they are not all created equal. Below are the things you should understand before hiring a Financial Advisor:
What kind of certification should they have?
The highest certification level a Financial Advisor can achieve is a Certified Financial Planner (CFP). If you see this designation behind your advisor’s name, be impressed. It takes a lot of work, studying, and testing to get that certification.
Finding a CFP is a good start, but even more important than the level of education your advisor has, is the level of integrity and ethics they bring to their work. One way to help distinguish the sales focused advisors from the heart-centered advisors is to look for a Fiduciary Advisor.
Fiduciary Advisors have taken an oath and have a legal obligation to always act in the best interest of their clients (yes, shocking this is not required across the industry!). Therefore, a Fiduciary Advisor is more likely to give you their unbiased opinion about YOUR specific situation instead of trying to sell you into a specific financial product.
NOTE: I know some advisors, that I even refer to, that are not fiduciaries. But I have met them personally and trust their ethics and integrity. So decide for yourself, but be aware of the differences and trade-offs.
How are they getting paid?
Financial Advisors need (and deserve to) get paid. But you should understand HOW your advisor gets paid. Are you paying them an upfront fee? Or are they getting a commission on your investments? If they get any kind of commission or % of your invested assets, proceed with caution and dig into the fine print to understand exactly how much your advisor will pocket each year. This is especially important if you are not working with a Fiduciary Advisor.
Fiduciary Advisors generally charge an upfront fee to work with them, no commissions. These are called fee-only advisors. Fee-only advisors aren’t getting commissions on what investments they sell you, which is generally a good thing. Fiduciary Advisors are fee-only advisors.
Where should I start my search?
The best place to start looking for an advisor is from friends and family that you respect. Ask them if they have an advisor, what their experience has been and if they would recommend them to you.
If your referral network doesn’t pan out, start with a simple internet search for Fiduciary Advisors in your area or check out this website (https://www.napfa.org) but note this is not a comprehensive list.
How do I know if it is a good fit?
No matter what kind of Financial Advisor you choose it should be someone you feel comfortable with, does not talk down to you, and takes the time to walk you through all your questions and anything you don’t understand. Remember, you are an equal player in this relationship. You never want to blindly hand over your assets to anyone, no matter the credentials or trustworthiness. You need to understand the process and agree to the strategy and decisions each step of the way.
How do I know if I need an advisor at all?
Some advisors require that you have a certain level of investable assets to work with them. Unfortunately, the more established the advisor, the more likely they are to have these rules in place.
If you are just starting out and don’t have sizable assets to invest you need to find an up and coming advisor who will take you on as a client (and whose fees you can afford). If you are young and know you just need to work on saving more for retirement, you might just need to focus on increasing your savings rate and educating yourself on basic investment accounts and savings rate goals before you seek out additional help.
Have conversations with friends and family about what they are doing, what’s working for them and what companies they invest with that they like. Big brokerage firms like Charles Schwab, Fidelity, etc. have great customer service advisors that can help you open a basic retirement account and start investing in it.
You shouldn’t go through life relying on other people to ‘handle your investments’ for you. If it isn’t time to hire an advisor yet, take the DIY approach for a while and educate yourself.
Bottom line: You need to be an active participant in your financial education and management. No money professional, coach, advisor or otherwise is going to magically solve all of your financial woes. They can provide systems, guidance, and inspiration. They can and will help you reach your goals faster. But the execution to get there is ultimately on YOU. Money management doesn’t have to be a scary beast. It can turn into something you enjoy, especially when you start to sees all your money dreams coming true.