How Do You Find a Good Advisor? | Brandon Averill, Justin Dyer | AWM Insights #100

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Episode Summary

You are ready to hire a professional but with over 300,000 people calling themselves financial advisors, where do you start?

Multiple studies have proven that a good advisor can add 3% or more in value per year to their clients. Finding a good advisor with the right competence and without conflicts of interest is harder than it seems.

Brandon and Justin give you exactly what to look for once you’ve decided to start looking and detail the value the real ones can add.

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Episode Highlights

  • (1:05) If I don’t want to do it alone, how do I assemble a competent team?

  • (2:32) There is no regulatory body that regulates who can call themselves a financial advisor like in the medical or attorney field. This is a detriment to the public.

  • (3:40) Unfortunately salesmen in the industry can take advantage of clients very easily in this industry. 

  • (5:25) If you are looking at only investments and ignoring the big picture, you are leaving money on the table.

  • (6:25) Doing things in isolation wastes a lot of time and creates unnecessary work for investors.

  • (8:02) Elite athletes understand coaching elevates their game and it’s the same with finances.

  • (9:10) Most people in the advisor industry are salesmen and don’t have financial expertise.

  • (10:15) Conflicts of interest between advisor and clients is something to be wary of. 

  • (11:00) Competence is not rewarded in this industry. Many people start in the industry and “dial for dollars”

  • (12:30) Who owns the firm you are working with and what incentives are they driven by?

  • (13:35) Law firms with strong professional standards are employee owned and that is not the case with most firms in the financial advisory world.

  • (15:20) Designations and Certifications are the minimums for those committed to doing what's right for the client. 

  • (15:50) Simple questions like “are you held to the fiduciary standard?” and “are you investing your own money the same way you invest mine?” These are powerful questions to ask your advisor.

  • (17:00) The benefits of working with a competent advisor is massive and have powerful studies that show as much as 3% of value added per year.  

  • (18:00) If the person you’re talking to is a broker then just move on. You want to find an investment adviser. 

  • (18:30) Brokercheck.com is how you can find out if they are a broker or investment adviser.

  • (19:00) Next evaluate the person and firm for conflicts and advanced designations.

  • (19:10) Then find out if you need only investment advice or financial planning. Looking for comprehensive planning is what people should look for at a minimum.

  • (19:30) If you are seeking multi-generational wealth then you have to start looking at multi-family offices

  • (20:15) Credentials in the form of experience and expertise should be measured and demanded.

  • (21:28) Fully integrated advice with one after-tax return and one net worth is true optimization. Independence from conflicts of interest is vitally important to align incentives. And individualized and customized advice designed specifically to your vision of success creates a better experience and outcomes for clients.

     

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Brandon Averill:
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+ Read the Transcript

Brandon Averill (00:05):

Hi, everyone. I'm Brandon Averill, one of the partners at AWM, where we advise people in creating multi-generational, flourishing families so that we can solve that shirtsleeves-to-shirtsleeves financial epidemic. This is a front-row seat with AWM's chief investment officer, Justin Dyer, and myself, as we discuss some of our clients' most pressing financial questions. This is AWM Insights. Let's dive right in.

Brandon Averill (00:32):

Well, Justin, we made it. Episode number 100. I can't believe we're here, especially with how this whole thing started off. COVID had launched this podcast, and now we're staring Ukraine in the face, so it kind of feels sadly appropriate that we're hitting 100 while the world's in a super interesting space.

Justin Dyer (00:53):

Crisis to crisis.

Brandon Averill (00:55):

It really is. It's sad. We're definitely in a world of turmoil at the moment, but I also think as we move into this discussion today, it's no better lens than to start to look through and really evaluate the role of an advisor that it might play in your situation. For everybody listening, what we're going to jump into today is last week we talked about going at it alone, what are some of the things you need to consider?

Brandon Averill (01:27):

This week, we're going to jump into, okay, for those of you that have decided, "Hey, I don't want to do this on my own. I don't have the time. I don't have the expertise. I need somebody in my corner. I need a team in my corner to help me through this entire or process of building out my financial structure, building out my investment portfolio. Now, what do I do?" There are roughly 300,000 people in the US that call themselves financial advisors. It's unfortunately a pretty easy thing to become a financial advisor. As we walk through here, let's uncover some of the myths. Let's uncover some of the truths that you should be looking for, Justin. I'll turn it over to you here. I'd just love to get your thoughts broadly. I know I'm going to get on my soapbox eventually. Before I do that and take over this thing, I'll let you jump in.

Justin Dyer (02:23):

Sure. I mean, it's a great topic. You and I love talking about ourselves, so that's what we get to do today. I say that with tongue in cheek. We're probably the most reserved on the team in that sense.

Justin Dyer (02:37):

Yeah, yeah, I mean the list of why you may want to consider working with an advisor is pretty long, and I'll hit on a couple, but I think just even starting with, with what you were saying around one of the downfalls of our industry is that there's no true professional standards, unfortunately. There are some really, really, really meaningful designations, but there's not a big centralized body, there's no regulatory body that says, "Okay, yeah, you can call yourself a financial advisor." Similar to what happens within the medical profession, or the legal profession, not anyone can call themselves a doctor for good reason, not anyone can call themselves a lawyer for good it, and it's unfortunate that the same thing does not imply apply in our industry. It really is. It's to the detriment of society, in my opinion, where we've heard the stories around advisors and financial firms just outright stealing money. It happens, unfortunately, all too frequently, and we as an industry have not done ourselves any favors in that respect.

Justin Dyer (03:45):

On the bright side, or on the positive side, there are some pretty easy things to look at if you're making this decision and we'll get into what those really legitimate designation are, questions to ask, maybe even, but it's not like this is all a big black box of an industry. I think, unfortunately, the gift of gab and the sales approach that happens and taking advantage of events like what's happening right now within Eastern Europe and Ukraine and Russia where your broker's going to, you reach out, or maybe you don't work with a broker, or someone's going to reach out to, "Oh, you got to sell, sell, sell, sell, sell, or, buy, buy, this and that," and they're taking advantage of these, well, loss of life, and similar unfortunate situations in Ukraine at a minimum, but also, just our own behavior reactions to certain things like, "Hey, the markets are going down."

Justin Dyer (04:45):

Well, first of all, that is probably a good thing. It's a natural outcome of markets. Markets have volatility. They go up and down. Set that aside. But it's very easy to take advantage of that when you're talking to individuals that maybe don't necessarily understand it all, or are asking questions, or are really in tune with what's going on.

Justin Dyer (05:08):

Bringing it back to the question that you at least said at the beginning, some common reasons that you might want to consider is that, hey, there's a lot to lose. Generally speaking, the clients that are listening, the potential clients or listeners to this podcast are very wealthy. They've made a decent amount of money, or may make a decent amount of money going forward, they have that untapped human capital, and really, you take a step back and you're like, "Well, wait a second. There's a lot at stake here and there's too much to lose to go this alone, making a mistake."

Justin Dyer (05:44):

The next two, I think, are actually the most important, that if you are looking at things in isolation and looking at the present-day crisis, whether that be COVID two years ago, or the Ukraine crisis right now, an missing the forest for the trees, you're leaving money on the table. What does that mean? We take the step a step back and look at things from a holistic after-tax, after-cost overall benefit to you, right? We always love to say, "Hey, you have one net worth, one effective to tax rate, and everything we do goes towards maximizing and optimizing those two data points from an investment perspective, from a planning perspective," and by having that mindset, and there's studies that corroborate this, we're not just saying that, but if you can focus on that and that holistic viewpoint, you are likely, let me say, I always have to qualify everything, you're likely to add value and outperform the alternative, right, just picking stocks, or just kind of looking at your investments in isolation, your estate plan in isolation, et cetera, et cetera, your taxes in isolation.

Justin Dyer (06:58):

Then there's some really just quality-of-life considerations as well. There's a benefit for paying someone to think about this for you. It takes that burden off your shoulders. That might resonate with some people, maybe not others. Then it's also just a partnership, too, where a lot of people we work with are incredibly intelligent individuals. You can make the argument that they could probably do this, and if they wanted to make a career change, they could probably work in this field, but they also value the partnership, the coaching aspect of it to help, whether it's their family, or themselves personally get through some sort of question or issue business, personal multi-generational, charitable. Whatever it is there's a ton of value there.

Justin Dyer (07:49):

Then again, kind of continuing the qualitative value, too, where the multi-generational component really into play, where if something, God forbid, were to happen to any number of head of households within a certain relationship, there's a continuation plan built in place with having a trusted advisor in place. Those are some really, really good, I think, tangible, meaty, valuable examples that I would throw out there.

Brandon Averill (08:23):

Yeah. I think those are fantastic, Justin. I think one of the places I'd love to sit on for a second, too, is just the coaching aspect. I think there's a great analogy. I mean, a lot of people listening to this are athletes. You could be a self-taught person, right? But what we know about hiring a coach is, and what most elite people do in life is if they want to get better at something, they hire a coach because the coach is going to help them. Even if it's incrementally get a little bit better, the value proposition of that is so significant. I think it would be the same way. You could certainly look at it the same way. If you're looking for somebody to give you advice on how do you develop your financial structure, how do you invest money, how are you tax-efficient? How do you do these things? It doesn't really take a whole lot, right? It, it just takes a little incremental, getting better gain to make the value benefit huge in the large scheme of things.

Brandon Averill (09:20):

I think it's probably time we hit on what you know is probably the worst-kept secret, at least amongst our financial industry, but for the public doesn't often realize that is that we've talked about this, not that hard to become a financial advisor, unfortunately, and what the secret is that unfortunately, most aren't experts, right? They're salespeople in disguise. They're not held to a standard that you would think is extremely common. It's sad when you talk to new prospects or clients about this and they find out that it's actually not every financial advisor's duty to do what's in their best interest. I think that's just mind-blowing to most people, and it should be because it's really poor, poor standard, but there is a group of people that only have to act in a suitable way.

Brandon Averill (10:17):

We won't go too far into depth on that, but I think when we start to look at advice and who we would say are a couple considerations that you should be taking a look at when you say, "Hey, okay, I want advice. Let's start to evaluate people," two things that should absolutely your primary lenses to start to look through. One is conflict. What are the conflicts? I think really looking at that, are they selling you some product? Do they have a reason that they're pushing a specific product upon you? Does their compensation change because of that? Or are they truly giving you advice, they're just selling you advice? There's still a economic benefit, right? But you look at those things and if there's a conflict of, "Hey, I have to try to get you to buy this specific product, because that's the only way I make money, or I make more money," my personal opinion, that's probably not a conflict I want to live with, but just go through the line and try to look at all those different conflicts.

Brandon Averill (11:24):

Then I think the bigger one for me is competence. Unfortunately, most of our industry is sales. It's a sales-driven culture. You even go back to the big firms. I mean, where I started, Morgan Stanley, it's very much, "Hey, start dialing for dollars," delay getting the CFP because Morgan Stanley needs to know from the get-go, "Hey, is this person going to bring enough business in for us to continue to pay them? Is this going to work out?" They're not willing to make the investment in people, or at least when I was there, they weren't willing to make the investment in people to see how that all played out.

Brandon Averill (12:09):

Unfortunately, most advisors are using strategies that end up doing more harm than they're actually doing good. The sad part is maybe they do this knowing it won't work. I would argue maybe even worse is they don't realize it. We see this a lot with some of these big life insurance firms, really good people, I just don't think they realize that they're not doing what's the best interest of the client because they haven't taken the time to really further their expertise. They drink through the fire hose that their employer gives them, but they don't actually go out and develop the expertise that it takes to advise families. Brandon Averill (12:51): A lot of times, I'll stop on this point, but back to the conflict, I think a great question to ask is, who owns the firm that you're going to work for, and who are they making decisions to benefit? You have the big Wall Street firms, of course, are publicly traded. Their number one duty is back to the shareholder. Then you've got even on the independent side, more recently, all these firms taking private equity money, and now, I have to produce a certain return for my private equity investors, and if I don't do that, my business is in trouble, so we're definitely very biased on this. We're an employee-owned firm. We always will be for that reason, because I think it just aligns us so much better with our clients.

Justin Dyer (13:40):

Yeah. I mean, everything you hit on are great and really easy questions, research items to sink your teeth into if you're going down this path. It gets back to that professional standard or lack thereof requirements within our industry, which again, I think is really unfortunate.

Justin Dyer (13:59):

A similar way to kind of think about is you don't see most law firms are partnerships owned by the partners that are actually still practicing for this exact reason. Accounting firms, very, very similar. These are industries that have longstanding professional standards and our industry is really pushed against that. To your point about private equity coming into to our world and throwing around huge checks to some of these firms that are almost too good to walk away, there's not an alignment with the way in which we service clients with short, shorter term, transactional money.

Justin Dyer (14:43):

I had a conversation with a VC, a venture capitalist recently about this exact topic, and they actually agreed with me in the sense where we're building relationships, and we want to affirm that the clients know intimately and is going to be along with them over their life journey, and again, multi-generational is our goal as well with the firm and the family relationships. There's a venture firm-backed financial advisory firm that it's almost completely counter to that goal where, guess what? That venture capital or funded firm is going to sell out to a big bank, go public, and you separate those alignment of interest quite substantially in those situations. Again, something to keep in mind and ask as you're kicking the tires in addition to just some basic credentials around competency, right?

Justin Dyer (15:46):

CFP, CPWA, CFA, these are things we all talk about out, and we take pride in on our team. A lot of these are, to be totally fair, are kind of table-stake-type certifications. You need to have an element of always seeking knowledge and doing what's in the best interest of the client and all of that and those are almost unmeasurable things, but hopefully that can come out through interviews and conversations. But at a bare minimum, some of these things around fiduciary standard is what you were alluding to, which is doing things in the best interest of the client and asking, "Hey, do you invest your money the same way that you're advising me to invest my money?" I mean, that's a powerful one right there, and really easy to flesh out some information, especially within this broker model where these guys, to your point, are salespeople. They're glorified salesmen that are selling an investment in probably not able to put their money in every single investment that they sell as well because it's just the model does and align for it. Yeah, some simple questions that you can really think about.

Justin Dyer (16:59):

At the end of the day, I really want to underscore the fact that the industry is actually an incredibly powerful force for good if you know which path to go down. I alluded to studies at the outset that show the value of advice. This is a specific type of advice and type of business relationship within the advisor space. Again, I mean, I've seen mortgage brokers call themselves financial advisors. There's no restriction on who can say it.

Justin Dyer (17:30):

But if done properly, the benefits are incredible, and in most of these studies, they actually show pretty substantial benefits. Vanguard has a big one. Vanguard Advisor Alpha says something around 3% additional net returns by working with an advisor. I mean, if you think about a 3% additional return compounded over the life of relationship, that is substantial. For those of you that aren't math quizzes out there, I mean, a simple 1%, even less than 1% rate of return differential over long periods of time can be such a substantial difference in dollars and dollars and value dollars at 30, 40, 50 years down the road. It's pretty powerful when you think about it that way.

Brandon Averill (18:21):

I couldn't agree more, Justin. At this point in this discussion, I think we'll get as bold as saying if the first question, right, as you're working through this, that fiduciary standard, if the person sitting in front of you or the person you're potentially talking to is a broker, just pass go and go to the next one. I mean, do yourself the favor of just eliminating a whole bunch of noise and move on.

Brandon Averill (18:48):

The way to check that, there's a website, it's brokercheck.org. You can go on there and you can search. You put the name in of the person it's going to pull up and if it says they're a broker, just move on. What you're looking for is investment advisor. I would encourage everybody, start there. That is going to filter out 90% of the noise.

Brandon Averill (19:12):

Then the next question becomes, "Okay, great. Now, I've got this semi-qualified, I guess, person in front of me. Let me start to evaluate the person and the firm for conflict and for competence. Have they pursued advanced designations? What kind of conflicts exist, et cetera?" But if you do that, I mean, you're putting yourself far in a way above everybody else.

Brandon Averill (19:38):

Then it moves to, "Okay, what's the advice model? What do I really need here? Am I looking for just an investment portfolio, just very basic asset allocation? Am I looking for financial planning in a greater, greater whole?", which we would encourage everybody to do, we think the value is certainly there, and for those that are in that multi-generational wealth perspective, "Am I getting access to a family office?" I think that's where you can start to go down this path. We've talked about the differences previous episodes of this podcast, and I'm sure we'll get into it more, but I feel like Justin, I don't know if that resonates with you, but that's, that's basically how I'd work through this at a very basic level. Get yourself into a really good position to get a lot of really good advice is knock out all those brokers and then figure out the conflicts, competence, and what advice model I ultimately want.

Justin Dyer (20:38):

Yeah, definitely. Throw in there at a minimum, there should be some credentials on the team. I want to underscore the fact that the comment you made around the model, there's so many good firms that are doing only investment-focused advice, and charging you a fairly large amount for that. That's good. It's not a terrible thing if you've kind of gone through this whole checklist of items that we've touched on. But it's truly our belief, and again, there's studies and plenty of data and research that backs us up that if you're looking at things in isolation, just your portfolio, and you have your accountant over here, your CPA firm over there, the two don't really talk in an integrated fashion to one another, same thing on estate planning, whatever it is, there's all these interesting subject areas within finance and financial planning that if you're looking at them in isolation, you are likely not optimizing your overall net worth, your overall tax rate, your bottom line, if you will. That's why we are set up the way we are to be fully integrated, independent of the big banks in a sales environment, and then individualized, right?

Brandon Averill (21:59):

Yeah.

Justin Dyer (21:59):

That gets to your family office piece where really, really, really custom approach to everything that's specific to client's goal and priorities, including the investment portfolio. A lot of what happens with firms that are only doing investments is they're still putting you in a model portfolio that is one of 10 to 20 models that they operate as opposed to a tailor-made portfolio specific to you. We are set up for that, and that's why, obviously, we're biased in that sense, but for good reason. I think we've all thought about this quite a bit. Happy to go in further on any one of those topics on as to why we might be set up a certain way.

Brandon Averill (22:44):

All right, cool. Well, I think that's a great way to close out episode 100. Hopefully, we provided some value for everybody to start to evaluate the relationships that they have and figure out, "Hey, am I getting what's in my best interest, or am I unfortunately being sold something that's just suitable?"

Brandon Averill (23:04):

But before we close out, as I announced last week, text me. We got a new text number, a place for everybody to join into the AWM Insights community. You can text us your questions, your feedback. Would love to hear what's been resonating with you guys. We heard the NFT episode was a hit. Should we do more special one-offs continuing down this path of some of the fundamentals? We're having a good time with it. Hopefully, it's providing some value to you. But to join that text chain, again, just text Insights, or you can do the little light bulb emoji. The telephone number is (602) 704-5574, or you can just click on the link in the show notes from your phone and hit Send, and that'll get you on the list as well. Lastly, again, one more time, phone number is (602) 704-5574. Until next time, own your wealth, make an impact, and always be a pro.