When it comes to your investments you want to make sure you’re getting the right advice, not just being sold a financial product that will get your advisor paid. You deserve the best advice that is going to serve your needs first, get you the best returns possible and tax breaks. Join me while I chat about what to watch for so you know what questions to ask about your financial advisor’s compensation structure.
The brilliant Nicole Putz is joining me again this week to chat about some of the things she has seen her clients go through as well. This is a good one that you don’t want to miss.
Take a listen now so you know what to ask the next time you’re making your money decisions.
Zena: Hello, and welcome back to another round of, “Our Heart of Money Talks”. This is Episode 16, and I have certified financial planner Nicole Putz with me here today. We’re going to talk about how to know if your financial advisor is just selling you a product and not providing you a service.
Thanks for joining, Nicole. So we were talking a little bit and a bit of a story to get us kicked off and started with this. It was about a couple that dealt with an advisor. Do you want to share a little bit that we might learn from them?
Nicole: Yeah, sure. So this was just recent, just within this last month. I was working with this couple and basically, what had happened is they had some pretty big insurance needs.
So they started to work with this individual. He probably did a really good job for them in terms of insurance, but just based on their needs analysis, which as financial planners when we work with clients, we realize that this is what we need to do when we’re going through the insurance piece of things.
I think. I shouldn’t put words in anyone’s mouth. I shouldn’t assume that I knew what he was thinking, but I think basically from my perspective, he thought that there were a lot of assets behind the insurance that he was giving them. So he was, “Okay, cool.” And then got his payday from the insurance but then had promised them everything from tax planning to estate planning to all of it.
And then, literally they didn’t hear from him for six months. That’s when they came to me and said, “Hey, listen, we’re worried.” They didn’t even have any log. They actually didn’t know where any of their money was. Oo it was just fumbling around to figure out that this guy never did the second amendment, anything. Their money hasn’t ever been removed and contributions haven’t even started.
So yeah. Long story short, follow through. It was NDG legitimately, I think. From my perspective, it was just, he got the insurance sale and that’s all he wanted. He got his payday and that was it. He didn’t really care about the rest. Things like that, so that selling a product, getting paid and then after that no service.
So there’s an example, that definitely after the fact, you realize, “Okay, I don’t think this person is providing a very good service. They’re just selling a product.”
That’s one story.
The other one is if I were to sit across from you and I asked you how you were compensated, what are some red flags in that conversation that maybe you would lean towards, this is more product selling than not?
If anyone ever tells you, “Don’t worry about how I get paid. It’s all taken care of,” that’s probably a red flag. Please send me a note because when you say that, I actually imagine a pat on the head, with an “Oh, don’t worry everybody. Cool. We got this. If you want me to worry about that.”It’s just such a silly thing.”
Even thinking out of the financial realm, if you’re paying for anything, you want to know what you’re getting for it. If you’re paying for a service, like we’re talking about, you want to know how it’s working and what service you’re getting out of it. So totally if in my opinion, and probably yours too, if a planner can’t tell you how they get paid, that’s an issue.
If they fumble around it, that’s a problem
Zena: Okay. Good one. Constantly making changes.
Nicole: Yeah, that’s probably not good either. I feel like it’s connected to compensation because if you don’t know how an advisor’s compensated and then if you feel like you’re getting a call every other week and you don’t know how they’re compensated, maybe there’s a red flag there on these changes.
Zena: Yup. Okay. I’d say that’s probably pretty accurate.
Nicole: The thing is, you’re just this is a little bit of a deviation, but I think right now, in terms of mutual fund and investment fees in terms of compensation, it is getting a lot of heat. What I’ve told clients is this is the same vein — if you are paying a fee, whatever that fee is, ask yourself what you’re getting for the fee.
What kind of service are you being provided for that fee? If you never talk to your planner, that fee probably not worth it, but if your planners, “touching” you all the time, I know that’s the best way to put me off, you know what I mean?
I mean if they’re contacting you and they’re doing all the services. People have got to eat, people have to get paid, but if it’s the service side and they’re saying, “We’re just going to make a product change.”
Now it’s newsletters, lunch and learns. It’s, “How are things going? Hey, it’s tax time. How can we help? We should do a review and talk about this”.
So that relationship that there makes a difference but constantly making changes in a portfolio is also a red flag. There’s a saying out there and it’s that the investment that always does better than the investor because if you tweak too much you’re going to lose out.
And so there are some other conversations around if you’re getting a call every other week and making changes that should be a red flag as well.
Zena: So here’s one. If you’re sitting across from the advisor and you’re talking to them and they’re promising you – and we’ve all read this in the paper of some bad stories, but they’re boasting – “Oh yeah. I can easily beat the market. Yup. 9%. No problem.”
Nicole: Yeah, actually there was an article in the Leader Post that I posted about this last summer, and an advisor ended up getting time. He’s doing hard time now. He was promising 20.
Zena: So promising anything right now with GIC, which is a guaranteed income product promises 0.8%.
Nicole: The guarantee is not very big.
Zena: Can you guarantee me 1.5? Yes! I’m sorry. I’m getting off-topic there.
Nicole: Yeah, absolutely. If an advisor is sitting there promising you the moon and the stars when it comes to interest rates, that’s a red flag.
Zena: And what if they’re only calling you for that product purchase and you haven’t had any other conversations?
So if it’s going straight to the investment conversation, because, imagine a big circle and in the middle of that circle is a dot – that’s the investment. But now that entire big other circle needs to be filled. And that’s the conversations that happen.
Zena: The investment part is super easy. But it’s really all that other conversation. I think this is for the listeners here is that you need to have a relationship that includes conversations about more than just investments and products.
Nicole: Yeah, I agree.
Zena: If they haven’t talked about it and they’re not going to do a financial plan and they haven’t suggested that you need a financial plan…
Nicole: I think sometimes it depends on what you’re wanting out of the relationship. So I would say if you’re going in there and you yourself know, for example, that all you want is tax planning.
You and I always talk about financial planning are those six core buckets. It’s financial management, investment planning, tax planning, retirement planning, estate and insurance. Those are the 6 components, but if all you need is tax planning, then maybe a CPA is going to be the person that you need…or the same with investments.
If it’s just investing you want, and you don’t have any interest in doing anything else, maybe that’s who you work with. But this is where it gets sticky because everything connects to everything.
It is one thing to do investments on their own, but how does it connect to your tax planning? Does it in a big way? How does it connect to your insurance planning? And that’s where the planner shines. That’s where the planner comes in to play.
Zena: So it should at least be brought up. Then it’s up to that individual, if you say, “You know what, I’m good. I’ve got a plan. I got this figured out….”
Nicole: But that’s even something on the advising side as well. They should be able to tell you the services that they can provide and then you get to make the decision as the client.
It shouldn’t be like afterthought that you’re thinking, “I don’t know if they really explained everything, or I don’t even know what happened in there.”
It should be pretty clear, to understand their process. Here’s the way they work, and if it’s right for me, great. If not, whatever, no problem. If they’re not telling you how the process works and it’s just, like you said, even to your last point, they’re just going straight to a product or straight to investment then maybe take a step back and evaluate.
Zena: That leaves me for the last thing I just wanted to touch on and that is that if they’re not a certified financial planner now, meaning that you don’t have to be a certified financial planner, but the knowledge base behind that – and we shared that in our previous episode, we went quite in-depth – the difference between a financial advisor and a certified financial planner, but at least if you have a certified financial planner, at least they have the education to provide you more than just a product where if it’s just a financial advisor, they really are only a specialty of a product. So that was that last kind of checklist of trying to figure out if this about just selling you something. Awesome. Thanks for joining and we’ll talk more next week.