Our question of the month comes in from Ryan from Pittsburgh. He wants to know how to find the best financial advisor:
I’ve been listening to your show for the past few months. I like the way that you and Nicole partner together to meet your financial goals. It’s inspiring me and my wife (who is also coincidently also named Nicole) to do the same.
We’ve been following the Dave Ramsey baby steps and recently paid off our last debt. When we got focused, it really only took us about 2 years to pay off our $60,000 in debt. We both had car loans, student loans and a little bit of credit card debt.
Now that we’re debt-free, we want to start saving up for retirement. We’ve been delaying our retirement investing based on Dave’s advice to hold off until you’re debt free. I feel like we’re WAY behind though. We’re both 30 and we barely have anything in our retirement accounts.
Early last year, we were able to get our student loans down to around 3.5% with SoFi. I was happy with the results of the refi, but at the same time, the market was skyrocketing. It felt frustrating that I wasn’t in it. I was saving 3.5% while the market was doing 18%! Also, my company matches 20% of my 401k deposits.
I felt like I was on the sidelines during a huge game I wasn’t able to play in.
Anyway … back to my question for you.
Nicole and I are ready to start investing for our retirement.
We’re planning on meeting with a SmartVestor Pro through Dave Ramsey’s site to guide us in the right direction. Since this is brand new for us, do you have any suggestions on how to start? Have you used a broker before? Any lessons learned?
By the way, our combined HHI is around $150k. We have no kids but we’re thinking about it in the next couple of years. We live outside of Pittsburgh and we have $30,000 in an emergency fund. I’m not sure you need this information, but here it is anyway.
Any insights you can share would be great. Keep up the great work on the show.
Thanks for writing in Ryan.
$60k in 2 years is an incredible feat! Congratulations!
Before we get to your question, I want to comment on your thoughts around stopping your retirement investing during the debt pay off process. This is a huge concern I hear about again and again.
Retirement Savings Before You’re Debt Free
Dave Ramsey’s advice is to stop all retirement investing until you’re consumer debt free. In his eyes, all of your non-mortgage debt should be gone before you invest for retirement.
I understand the rationale for this advice for sure. A lot of people dip into their retirement savings during emergencies when they’re in debt and don’t have the necessary cash available.
According to CNBC in 2016, 1 in 10 workers has taken a hardship withdrawal from their retirement for reasons ranging from medical expenses to home repairs to covering home payments.
In this case, these people needed fast money right away and their only option was their retirement savings. This move causes massive losses. Using the 401k as an example, for early withdrawal you’d have a 10% penalty charge and you’d have to pay the taxes since the initial deposit was pre-tax. Depending on your tax bracket, you could be looking at a 40% hit on your money!
This is what Dave is hoping to avoid for people. With no debt and a healthy emergency fund, you’re less likely to pull from your retirement when you really need the money.
Take Advantage of Free Money
In your case, I don’t necessarily agree with the baby step process.
If your company matches, you need to be taking advantage of that free money. That’s $3,700 of free money that you’re passing up if you max out your 401k contributions at $18,500 this year. FREE MONEY!
I think Dave’s policy is not a one size fits all deal. All in all, it is good advice for most, but not for your specific situation Ryan.
This is all water under the bridge now, but perhaps we can help others by sharing these details!
Back to the question at hand …
What Should I Do Before Meeting with a New Financial Advisor?
1. Educate yourself before meeting with an advisor
I know the point of working with a financial advisor is to have them help you with all of the difficult and complex decisions involved with retirement planning, but if you’re not careful, that could potentially cost you hundreds of thousands of dollars. That sounds like a hyperbolic statement, but I’m very serious.
The advisor fees associated with a 30-40 year relationship can really add up. According to Nerd Wallet, 1% here or 2% there has the potential of eating up a big chunk of your retirement earnings.
I want to recommend two books to you before meeting with a financial advisor:
A major portion of this book is about how the financial advising industry works and how much money you’re truly paying.
This book breaks down the complexities of investing and highlights the power of index funds.
These are both very enlightening reads. If you’re not into reading, audiobooks through Audible or your local library are an excellent way to go.
After reading these two books, you may want to do the investing yourself.
2. Find a Fiduciary
Let’s say after reading those books (or not reading them) you are still very much interested in having an advisor help you.
I’d suggest looking for a Fee-Only Certified Financial Planner (CFP) that is a Fiduciary:
- Fee-Only: The advisor will not earn a commission from selling you certain products.
- Certified Financial Planner (CFP): A professional certification is the standard of excellence in the financial advising world.
- Fiduciary: This is someone who has a legal duty to act in your best interest.
That is the type of person I’d want in my corner fighting for me.
Now Ryan, I’m not positive that the SmartVestor Pro in your area will fit these criteria, but if they do, awesome! If not, I’d look elsewhere.
I’ve heard that XY Planning Network is a great option to consider.
3. FINRA Broker Check
Once you find someone you’re excited about working with, make sure to check them out on FINRA Broker Check. This resource will tell you some important things about your potential advisor:
- Their education and credentials
- Where they have worked
- Any complaints or disclosures on their record
If you’re going to put a million of your dollars in someone’s hands over time, you want to know as much about them as possible.
4. Ask Many Questions
Once you’ve narrowed down your candidate, ask that person a lot of questions over the phone or email before you meet them.
Here are 5 that come to mind:
- (If they have a disclosure or an open complaint on their FINRA broker check) Can you please explain this disclosure on your FINRA broker check record?
- Are you a “Fiduciary”? If not, why not?
- Can you please explain your fee structure to me?
- What does our relationship look like after our initial deposits?
- How do you typically communicate with your clients?
Based on all of this information, you should get a good sense of how the relationship will go.
5. Meet in Person
You can learn a lot about a person when you meet them face-to-face. If you’re working with a virtual advisor, at least do a video chat.
When you’re talking together …
- Are you getting feelings like this person is out for your best interest?
- Is this person trying to help you learn?
- Or are they convincing you to buy something you don’t need?
This is also a good time to discuss your specific situation and how they may help you. Some advisors offer a complimentary plan to show you how they would work as your partner.
When this plan comes together, make sure you understand how much it is going to cost you.
My Previous Financial Advisor Experience
Ryan, you can probably tell that I’ve been burned in the past.
I didn’t ask enough of these questions and I got hooked up with someone who was more interested in selling me products than helping me and my family win in retirement and college planning for our kids. In short, we lost money when we shouldn’t have from poor advice.
I blame myself for not asking the right questions and not educating myself beforehand. Never again.
Bad experiences sometimes beget great things. That financial loss was one that jolted me into action. I wanted to learn as much as possible so it wouldn’t happen again.
We’re now on a much better retirement savings path. I’m definitely not an expert, but sometimes the “experts” can drive you in the wrong direction.
I hope that answers your question, Ryan! I wish you and Nicole the best of luck with your retirement planning.
Money Master of the Week
Congratulations to Jessika from Michigan for paying off $70,000 in student loans this month!
Jessika attributed her success to the following:
- Living on a budget
- Avoiding online shopping
- Surrounding herself with supportive messages and people
Now that she’s debt free, she’s planning on growing her savings and buying a nice reliable car with cash.
Jessika from Michigan is our Money Master of the Week!
If you have a financial victory you want to share on this show, please leave me a voicemail (or email) and include the following: name, location, your big win, how you did it and your plans for the future.
Your story will inspire others to save more, make more and plan for their family’s future.
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