3 Secrets to Building Generational Wealth and Everything You Want To Know About Working With a Financial Planner
In this episode of Money Rehab with Nicole Lapin, financial advisor Adriana Adams from Domain Money explains the different types of financial advisors and their roles. She outlines the distinction between investment managers, who focus on portfolio optimization, and financial planners, who take a broader approach to managing clients' financial lives—covering everything from budgeting and debt to taxes and insurance.
The discussion delves into practical considerations for choosing a financial advisor, including fee structures, certification requirements, and communication styles. Adams shares insights from her experience working with clients at Domain Money, describing how their flat-fee structure and tiered services accommodate various financial situations. The episode covers what questions to ask potential advisors and explains why working with a CFP-certified fiduciary advisor matters.
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The Role and Value of a Financial Advisor
Adriana Adams explains that financial advisors provide comprehensive financial planning services, offering expertise in investments, taxes, and complex financial matters. Through her work at Domain Money, Adams demonstrates how advisors create personalized strategies that balance immediate needs with long-term goals, while handling technical aspects of investment management and providing accountability for clients' financial objectives.
Financial Advisors: Investment Managers vs. Financial Planners
The podcast distinguishes between two types of financial advisors. Investment managers focus primarily on optimizing investment portfolios and typically charge based on assets under management. In contrast, financial planners take a more comprehensive approach, addressing budgeting, savings, debt, taxes, insurance, and investments. Adams notes that financial planners often charge flat or hourly rates and, as salaried employees at firms like Domain Money, can maintain their fiduciary duty to act in clients' best interests.
Choosing a Financial Advisor: Key Questions
Nicole Lapin and Adriana Adams emphasize the importance of selecting a CFP-certified fiduciary advisor who meets rigorous education and ethical standards. They recommend asking about fee structures, communication styles, and investment philosophies to ensure alignment with personal financial goals. Adams shares that her experience with over a thousand clients has shown the importance of finding an advisor whose approach matches the client's needs.
Considerations for Financial Advisors: Fees, Communication, Minimum Requirements
Adams advocates for flat-fee structures, which she believes offer more transparency than asset-based fees. At Domain Money, they provide tiered services with varying fees based on client needs, including regular coaching sessions throughout the year. Unlike many firms, Domain Money doesn't require minimum account balances, working with clients across various financial situations and providing free resources for those not yet ready for full advisory services.
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Counterarguments
- While financial advisors offer comprehensive services, some clients may find that they can manage their finances effectively without professional help, especially with the abundance of financial education resources available online.
- Personalized strategies are valuable, but some individuals may prefer a more hands-off approach or may not require the level of customization offered by financial advisors.
- The technical aspects of investment management can be handled by robo-advisors or passive investment strategies, which can be more cost-effective for some investors.
- Investment managers who charge based on assets under management may incentivize a focus on growing the portfolio, but this fee structure can also lead to conflicts of interest if the advisor benefits from frequent trading or selecting higher-cost investment options.
- Financial planners offer comprehensive services, but their fees, whether flat or hourly, may not be cost-effective for individuals with simpler financial situations.
- The fiduciary duty is important, but it does not guarantee superior investment performance or that the advice will be perfectly tailored to every individual's unique circumstances.
- CFP certification and fiduciary status are significant, but they do not necessarily mean that the advisor's recommendations will align with the latest market conditions or personal preferences.
- Asking about fee structures and communication styles is important, but these factors alone may not fully capture an advisor's effectiveness or the quality of the relationship.
- The importance of finding an advisor whose approach matches the client's needs is highlighted, yet some clients may not have a clear understanding of their own needs or how to assess an advisor's approach effectively.
- Flat-fee structures are praised for transparency, but they may not always be the most cost-effective option for clients with larger portfolios who could benefit from economies of scale.
- Tiered services and varying fees can be beneficial, but they can also be confusing and make it difficult for clients to compare services and costs across different advisors.
- While Domain Money's lack of minimum account balances is inclusive, it may also mean that the firm has to spread its resources across a larger number of clients, potentially affecting the quality of service.
- Free resources are valuable, but they may not be sufficient for individuals who need more tailored advice but are not yet able to afford full advisory services.
Actionables
- You can create a financial advisor interview template to ensure you cover all the essential questions when meeting potential advisors. Start by listing questions about fee structures, communication styles, and investment philosophies, then leave space for notes on their responses. This will help you compare advisors systematically and make an informed decision based on your personal financial goals.
- Develop a personal financial health checklist that includes budgeting, savings, debt management, taxes, insurance, and investment categories. Use this checklist to self-assess your financial situation before meeting with a financial planner, so you can identify specific areas where you need the most guidance and ensure a more focused and productive conversation.
- Experiment with a tiered goal-setting approach to align with the concept of tiered financial services. Break down your financial objectives into immediate, short-term, and long-term goals. Assign actionable steps to each and review them regularly to maintain accountability, similar to how you would with a financial advisor providing regular coaching sessions.
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The Role and Value of a Financial Advisor
Adriana Adams discusses the critical services that financial advisors provide, from creating comprehensive financial plans to offering expertise on complex topics like taxes and investments, ultimately ensuring clients are confident in their financial strategies.
Advisors Offer Expertise, Guidance, and Accountability to Help Achieve Financial Goals
Financial Advisors Specialize In Financial Planning, Investments, Taxes, and Complex Topics
Adams illustrates the value of a financial advisor through a success story with a client named Jamie, who arrived with confusion over financial strategy. Adams crafted a comprehensive plan tailored to Jamie's goals, leaving Jamie with renewed confidence. Financial advisors like Adams, who works with Domain Money, offer specialization in planning, investments, taxes, and other complex financial matters. She trains and onboards all certified financial planners at her firm to ensure they're equipped to provide expert guidance.
Benefits of a Financial Advisor for a Comprehensive Plan
Adams underscores the benefits of a financial advisor in creating a harmonious balance between immediate financial needs and long-term goals. Emphasizing the importance of a sound long-term savings strategy, she uses the analogy of securing one's oxygen mask first—the foundation of personal finance—before addressing other financial objectives. Advisors guide clients to address 'bookend goals' such as short-term liquidity and eventual financial independence. With insights into various account types and tax implications, such as the advantages of custodial accounts and the kiddie tax, advisors ensure clients hold comprehensive and personalized financial strategies.
Financial advisors also simplify the investment process by handling the technical aspects, from crunching numbers to strategy development, and assist in every step including trades and account openings. They're integral in implementing strategies, removing the burden of complex decision-making, thereby allowing clients to concentrate on their lives without the "mental gymnastics" of financial planning.
Financial Advisor: Objective Accountability and Goal Tracking
Although not explicitly stated in the provided transcript, the role of a financial advisor inherent ...
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The Role and Value of a Financial Advisor
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Counterarguments
- While financial advisors offer expertise, some individuals may have the knowledge and resources to manage their own financial planning effectively without external assistance.
- The value of a financial advisor can be diminished if the fees associated with their services outweigh the benefits or returns they generate for their clients.
- The guidance and accountability provided by financial advisors might not be necessary for everyone, especially for those who are disciplined and have a strong understanding of their financial goals and how to achieve them.
- Comprehensive financial plans are beneficial, but they can also be rigid and may not account for the unpredictable nature of life and markets, requiring more flexibility than a set plan can provide.
- Some critics argue that the financial industry can sometimes have conflicts of interest, where advisors might prioritize their own financial gain over the best interests of their clients.
- The simplification of the investment process by financial advisors could lead to a lack of engagement or understanding of one's own financial affairs, potentially resulting in less informed decision-making by the client.
- Objective accountability is valuable, but it can also be achieved through personal discipline and the use of technology-based tools without the need for a financial advisor.
- Annual updates to financial plans may not be sufficient for all clients, especially those with rapidly changing financial situations or those who are d ...
Actionables
- You can start a financial book club with friends to collectively expand your knowledge on financial planning and investments. By reading and discussing financial literature together, you'll gain diverse perspectives and hold each other accountable for learning and applying financial concepts. For example, each month, the group could pick a book or a set of articles on a specific financial topic, such as tax strategies or investment basics, and then meet to discuss key takeaways and actionable steps.
- Create a "financial independence roadmap" using a free online template to visualize your long-term financial goals and savings strategy. This roadmap would be a living document that you update annually or after significant life events. It could include milestones like paying off debt, saving for a down payment on a house, or planning for retirement, with steps and timelines for achieving each goal.
- Develop a habit of cond ...
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Financial Advisors: Investment Managers vs. Financial Planners
When it comes to financial advice, there are distinct differences between investment managers and financial planners, particularly in their approaches, payment structures, and the scope of advice provided.
Investment Managers Optimize Client Portfolios and Returns
Investment managers primarily focus on optimizing clients' investment portfolios to maximize returns.
Managers Paid On Asset Percentage
Typically, investment managers charge an assets under management fee, which is a percentage of the total assets being managed. For example, with a 1% fee, managing one hundred thousand dollars in assets would cost around a thousand dollars a year. This payment structure incentivizes investment managers to focus on increasing the value of the assets they oversee.
Investment Managers' Advice Is Limited To Investment Decisions
Some financial advisors, particularly investment managers, lean more towards portfolio management and prioritize managing the money. However, this may not include comprehensive financial planning. These advisors may concentrate less on individualized saving strategies, such as assessing the correct amount to save for a specific individual's situation, and more on broader investment strategies.
Planners Take a Comprehensive Approach to Client Finances
Financial planners adopt a more holistic approach to managing clients' financial health, considering a wide array of factors.
Financial Planners Create Comprehensive Plans For Budgeting, Savings, Debt, Taxes, Insurance, and Investments
Unlike investment managers, financial planners get to know the client personally, understanding their life goals beyond just managing money. Adriana Adams stresses the creation of a "spending plan" as part of comprehensive financial planning. Financial planners look at various financial aspects such as budgeting, savings, debt, taxes, insurance, and investments. They aim to determine suitable amounts of money for the client to save and spend in order to achieve a sense of financial satisfaction.
Compensation for Financial Planners Is Through Flat or Hourly Rates, Not Asset-Based Fees
Advisors, especially financi ...
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Counterarguments
- Investment managers may offer more than just portfolio optimization; some provide holistic services that include financial planning elements.
- Asset under management fees can align the investment manager's interests with the client's, as both benefit from a growing portfolio.
- The advice from investment managers, while focused on investments, can be comprehensive and tailored to individual needs, including tax implications and retirement planning.
- Financial planners' comprehensive approach may sometimes lack the depth of investment expertise that specialized investment managers possess.
- Flat or hourly fees for financial planners could potentially disincentivize long-term client engagement compared to asset-based models where advisors benefit from growing their clients' wealth over time.
- While financial planners are expecte ...
Actionables
- You can evaluate your financial health by creating a personal balance sheet and income statement. Start by listing all your assets (what you own) and liabilities (what you owe) to understand your net worth. Then, track your income and expenses to see where your money goes each month. This mirrors the comprehensive approach financial planners use and gives you a clear picture of your financial situation.
- Consider setting up a mock investment portfolio to practice making investment decisions without real money at stake. Use online simulators or apps that mimic real market conditions to test your investment strategies and learn about the market. This hands-on experience can help you understand the complexities investment managers deal with and improve your financial literacy.
- Engage in ...
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Choosing a Financial Advisor: Key Questions
When choosing a financial advisor, it’s essential to ask the right questions to ensure they meet your financial needs and can secure your financial future. Nicole Lapin and Adriana Adams discuss the importance of certification, fees, communication, investment philosophy, and experience when selecting a financial advisor.
Seek a Cfp-certified Fiduciary Financial Advisor
Cfp Designation Signifies Meeting Rigorous Education and Ethical Standards
Lapin and Adams stress the importance of looking for CFP-certified advisors. A certified financial planner (CFP) is considered the gold standard in the industry and indicates that the advisor has met rigorous education and ethical standards. Adams confirms that all financial planners at her firm are certified financial planners, which reflects their commitment to those high standards.
Fiduciary Advisors Must Act In Client's Best Interest
Adams clarifies that being a CFP means they are also a fiduciary, defined as having to act in the client's best interest. It's important to recognize that one does not need to be a CFP to be a fiduciary; other licenses or designations can confer fiduciary status as well.
Inquire About Advisors' Fees, Communication, and Investment Philosophy
Determine if the Advisor Charges Asset-Based, Flat, or Hourly Fees, and how This Aligns With Your Needs
When engaging with a financial advisor, understanding their fee structure is key. One should ascertain whether an advisor charges asset-based, flat, or hourly fees and how this will affect their financial planning. With a flat fee, for example, the cost is transparent (e.g., $3,200), whereas an assets-under-management fee may fluctuate. Adams reveals Domain Money’s flat fee schedule, reinforcing the varying structures across the industry.
Assess if the Advisor's Communication Style Suits You
Good communication is critical for a trusting relationship with an advisor. Lapin emphasizes the necessity of being able to discuss personal matters and life changes openly, while Adams promises open communication for clients, with designated online coaching sessions as part of structured membership services.
Align Advisor's Strategies and Risk Tolerance With Your Financial Goals and Risk Profile
Though not specifically discussed, it's implied that an advisor's investment strategies and risk tolerance should align with the cli ...
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Choosing a Financial Advisor: Key Questions
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Counterarguments
- While CFP certification is a strong indicator of an advisor's qualifications, it is not the only measure of competency; other certifications and experiences can also be valuable.
- Fiduciary duty is crucial, but it's also important to understand how advisors interpret and implement this duty in practice, as it can vary.
- Fee structures are important, but the lowest fee is not always indicative of the best value; sometimes, higher fees may be justified by superior service or performance.
- An advisor's communication style is important, but so is their ability to execute and manage investments effectively, which may not always correlate with communication skills.
- An advisor's investment philosophy should align with a client's goals, but clients should also be open to education and advice that may challenge their preconceptions.
- Experience is valuable, but newer advisors with less experience may bring fresh perspectives and be more in tune with the latest m ...
Actionables
- Create a financial advisor evaluation form to streamline your selection process. Before meeting potential advisors, prepare a form with categories based on your priorities, such as fee structure, communication style, and investment philosophy. Rate each advisor you interview against these categories to make an objective comparison.
- Set up a 'financial goals and risk profile' workshop with friends or family. Organize a casual get-together where each person shares their financial goals and discusses their risk tolerance. This exercise will help you articulate your own objectives and risk profile more clearly when you speak with potential advisors.
- Develop a 'financial advisor interview simu ...
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Considerations for Financial Advisors: Fees, Communication, Minimum Requirements
When selecting a financial advisor, it is crucial to understand their fee structures, establish clear communication expectations, and be aware of any minimum requirements for account balances or net worth.
Understand the Evolving Financial Advisor Fee Structure
Flat Fees Offer More Transparency and Flexibility Than Asset-Based Fees
Adams expresses a preference for financial advisors who operate on a flat-fee basis rather than the traditional asset under management model. She suggests that flat fees offer more transparency and flexibility. Clients with Domain Money, for example, are not locked into a contract; they can cancel their annual membership—a structured flat fee—any time. This flexibility allows clients to choose from different tiers of the membership based on their changing financial situations.
Furthermore, the flat fee charged by Domain Money is non-negotiable, although Adams highlights a referral program where clients can earn monetary benefits.
Advisors Offer Tiered Services With Varying Fees Based On Client Needs
Adams also mentions that Domain Money’s fee schedule varies based on the financial topics the client needs assistance with, which indicates the firm offers tiered services with varying fees. This tiered approach provides clients with the ability to scale their services to fit their unique financial needs.
Establish Clear Communication Expectations With Your Financial Advisor
While the provided content doesn't directly address communication expectations, the context implies its importance.
Frequency and Format of Check-Ins
Adams mentions that the membership process with Domain Money includes two to four coaching sessions throughout the year, with the option to add additional sessions. This speaks to setting up a regular frequency of communication with your financial advisor.
Furthermore, Adams highlights the possibility of a free strategy session to help prospective clients assess the right financial planner fit, which suggests the firm's readiness to establish communication channels early on.
Easily Reach Your Advisor For Guidance
Even though there’s no direct mention of how accessible financial advisors are for guidance, Adams reassures clients that they can contact their designated planner at any time with questions. ...
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Considerations for Financial Advisors: Fees, Communication, Minimum Requirements
Additional Materials
Counterarguments
- While flat fees can offer transparency, they may not always be the most cost-effective option for clients with smaller asset bases, as the fee might represent a higher percentage of their assets compared to an asset-based fee.
- A tiered fee structure, although customizable, can sometimes be confusing and may lead clients to pay for services they do not need or use.
- Setting clear communication expectations is important, but too frequent check-ins can be unnecessary and may lead to over-management or excessive fees for the client.
- Some financial advisors who specialize in high-net-worth individuals may justifiably require a minimum account balance or net worth to ensure that their b ...
Actionables
- You can create a personalized advisor evaluation form to assess financial advisors on their fee structures and communication practices. Start by listing the qualities you value in an advisor, such as fee transparency, flexibility, and communication frequency. When interviewing potential advisors, use the form to score them on these factors, ensuring you choose one that aligns with your preferences.
- Develop a financial self-assessment tool to gauge your own needs before approaching an advisor. This tool could be a simple questionnaire that helps you articulate your financial goals, investment experience, and desired level of advisor involvement. Having this clarity can help you communicate your expectations effectively and find an advisor willing to work without minimum account balances.
- Organize a virtual roundtable with friends or community members to discuss and share ...
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