The Role of a Financial Advisor

Derek Notman |

With all the online financial planning tools now available in 2019, should you still pay for a financial advisor? Is paying to have someone else manage your financial life including your investments, insurance, cash flow, etc. still worth it? Let’s assess it.

Firstly, just so we’re clear, a financial advisor helps people with their money and what they can do depends on the specific definitions of their titles which I will explain below.

If you want to read the more in-depth version of this article, you have that option too. Let’s begin.


What is a certified financial planner®?

Also known as a fiduciary advisor, a CFP® works with people to do comprehensive financial planning, helping people with everything from cash flow & budgeting to investing and advanced business succession planning.  They are process, not product focused. 

A CFP® can also engage in additional services beyond the financial plan, including insurance and investment advice barring they are licensed correctly.

If you come across someone who is calling themselves a “financial planner” but does not carry the CFP® marks, then they are most likely using a general term allowed by the firm they work for but that has not been endorsed by the CFP® board.  Tread lightly here.  You can see if someone holds the CFP® designation by searching here.


What is an Investment Advisor?

An investment advisor is: “any person who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities, or who, for compensation and as part of a regular business, issues or promulgates analyses or reports concerning securities…”

If someone is calling themselves a Registered Investment Advisor (RIA), or Investment Advisor Representative (IAR) of an RIA, then they are typically required to file & register with the Securities & Exchange Commission (SEC).  You can search to see if a particular person or firm is registered here. 

Not only will it confirm if a professional is registered or not but will list if they have been suspended in any jurisdictions or if they have filed for bankruptcy. 

If you cannot find the “investment advisor” here, then proceed with caution.


What is a registered representative?

As defined by the Financial Industry Regulatory Authority:

“Registered representatives are primarily securities salespeople and may also go by such generic titles as a financial consultant, financial advisor, or investment consultant. The products they can sell you depend on the licenses they hold. For example, a representative who has passed the Series 6 exam can sell only mutual funds, variable annuities, and similar products, while the holder of a Series 7 license can sell a broader array of securities.”

CFP®’s and Investment Advisors are acting in a fiduciary manner for you, Registered Representatives operate under the Suitability standard instead.  What do these terms mean?

Simply put, acting as a fiduciary means that the adviser is acting under a duty of good faith and trust for the client’s best interests, being personally responsible for recommendations they make to you, putting themselves on the line if they make a mistake.

Working under a suitability standard means the registered representative believes a recommendation is suitable for you based upon a variety of factors, but in the end, they are not liable in the same way a fiduciary adviser is.

Put another way, a fiduciary adviser is working first and foremost for you, the client.  A registered representative is working on behalf of a broker/dealer and only must show that their recommendation to you was suitable at the time it was made.


Can a financial advisor be more than one of these at the same time?

Yes, certainly!  It will depend on the scope and nature of the services provided; the adviser should be able to explain which hat they are wearing at which time.

The next natural question is, do you need a financial advisor? Well, it depends.


 Do you need a financial advisor?

Whether or not you need a financial advisor depends on a variety of factors:

  • Do you enjoy managing your own money and investments?
  • Do you have time to manage your own money and investments?
  • Are you a do-it-yourselfer?
  • Are you confident in your abilities to manage your money and investments?

There is no right or wrong answer, it simply boils down to how you answer these questions.  I like to make the analogy of managing your health. 

A lot of things you can do on your own, like eating right, exercising, taking vitamins, going for regular check-ups, etc.  And to know how to do these things in a beneficial way, you can self-educate.

But what if you have a more complex financial situation?  Like your health, you reach a point where you don’t know what to do and then seek the advice of a professional (i.e. a doctor or financial advisor).

Your needs are unique; thus, you should not make your decisions, about your money or health, based upon what your friends or family are doing. They are different people with different situations and needs.

It has been my experience, given that I work with a lot of technology founders & entrepreneurs, that they simply don’t have the time to manage their own money and investments and/or they are simply not passionate about it and would rather outsource their financial & investment planning so they can pursue their life’s passions.


The value of outsourcing to a financial advisor

Even though paying a financial advisor does cost something, entrepreneurs understand that their time is worth more doing what they do best, building their company and that it makes more sense to pay someone to help them than to try and do it themselves.

So, do you need a financial advisor? Maybe. If you feel like you do, then when should you hire one?


When should you hire a financial advisor?

If you feel you could benefit from hiring a financial advisor, then the question becomes when you should engage their services. It has been my experience that those that are successful with their money look to hire a financial advisor earlier on in their life and business journey.

You may be saying “I don’t have any money now, why I need a financial advisor?” Back to the health analogy. Living a healthy lifestyle is one that is proactive. 

You manage your weight, eat healthy foods, workout, and see the doctor on a regular basis because you want to be healthy. It is the foundation your health is built on.

Your financial health can be thought of the same way. You may not have much to work with today, but you are hoping to be more financially successful and sound in the future. 

Thus, you must put in a solid foundation to build upon, just like your health. You can also think about it like competitive sports. You don’t wake up one day and compete in the Olympics, you must train for years. The same is true for your financial life.

Even though you may not have a lot of needs, a financial advisor can help you crystalize what is important to you, what your hopes, dreams & goals are for the future, and then help you design a roadmap to realize them. 

With a highly customized financial plan, you are now able to set a baseline of where you are today while also identifying specific strategies that will help you get where you want to be in the future.

So, when should you hire a financial advisor? Sooner, rather than later. This also takes me to my next question; how do you find a financial advisor?


How to find a financial advisor?

This is important because you want to make sure you find someone you trust. Without the trust being established there is a good chance you won’t tell your advisor everything they need to know and subsequently, the advice given back won’t be as good as it should be.

It has been my experience that the most successful relationships between client and advisor are the ones where the people simply get along. They share similar passions. They share similar hobbies, activities, and ideals.

We as the human species are wired to connect with each other. We look for people who are like us, who do similar things, who share similar traits and interests. In short, we understand each other better when we share things.

When looking for a financial advisor, I find it best when you can connect with them on these levels. But where do you find them?

  • Start by asking some people you trust and respect who their financial advisor is and ask probing questions to learn more about them. 
  • Search online for the type of adviser you would like to work with. Is it someone who embraces technology? Are they local or virtual? Do they specialize in helping a particular type of person?

You can learn a lot by searching online: 

  • Once you find a couple of financial advisors that seem like they could be a fit, dig into their website. 
  • Are they transparent about who they are, on a personal level?
  • What their credentials are; if they are a generalist or specialist
  • What their prices are, etc. 

If you can find all of this, then you are making progress.

Once you have identified a short list, which should include 3 or so, verify they are who they say they are by checking them out both on the SEC and FINRA BrokerCheck websites. 

You will be able to learn what licenses & designations they hold, what states they are currently licensed in, if they have any complaints filed against them, and if they have ever filed bankruptcy. 

Chances are most advisers you speak with will have a defined process which usually starts with an introductory conversation to get acquainted and see if working together is the right fit for both of you. Ask them things like:

  • What types of services do you provide?
  • What are your prices?
  • Who do you specialize in helping?
  • What is your process?
  • What do they do outside of work for fun?

There are plenty advisers out there, find the one that is right for you. 


Do entrepreneurs need a financial advisor during the early stages of their business?

Although I specialize in working with entrepreneurs, this question could be asked about people who are in the early stages of almost anything or for those without a lot of money.

In my opinion, the sooner you engage the services of a financial advisor the higher the likelihood that you will achieve the things that you are striving for.

So yes, and yes!

Entrepreneurs have unique challenges and needs like not having much money in the early stages of their business to suddenly coming into a large amount of money when they exit their company. Going from close to broke to very wealthy can be a stressful and confusing time.

One of the biggest mistakes I see people making is that they don’t prepare for certain events in their life until they actually happen.  It would be like selling your business or retiring today and then saying to yourself “I should probably have a plan for what’s next!”.  This happens all the time, but that doesn’t mean it works.

In fact, I see most financial mistakes happen this way.  Therefore, I encourage people, entrepreneurs or not, to focus on financial planning as early as possible. 

In the early stages you may not have a lot of financial strategies that you can benefit from but assessing where you are and where you want to be is one of the first steps to take if you actually want to realize your hopes, dreams & goals.

Being able to model the sale of your business, or transition to retirement, to figure out how your life will change is of great value. 

It also allows you to formulate a plan on what to do before the event actually happens instead of trying to figure things out last minute.

It has been my experience that people think more clearly and objectively before they have a bunch of extra 0’s in their bank account!  Being prepared makes it much easier to make good decisions with your money once the time comes.


Hiring an online financial advisor

In 2019, many people prefer hiring an online financial advisor. Why? They will offer you the same benefits of a traditional financial planner, except online., which makes it more convenient. None of the services of a financial advisor change, they are just provided virtually over several online tools.   

Choosing to go with an online financial advisor is, in fact, more affordable than a traditional financial planner. The primary advantage here is the cost.

This is the direction the world is moving, everything is now based online, so why should it be any different when it comes to your financial planning?

Another great benefit of hiring the services of an online financial planner is that “meetings” are conducted remotely, which means you can “meet” from anywhere in the world so long as you have a decent internet connection. This means no more having to travel.    

Further to this, you will quite literally cut out all paperwork.

It really is a no-brainer, and most of my long-term clients have embraced this new online way of doing things.  

From my perspective, embracing the digital age and adjusting my proven methods to cater to the modern era has been exciting and incredibly beneficial. Not only are there positives for my clients, but for me too.

Nowadays, convenience is key, and thankfully, because of the innovative technology available, I haven’t had to compromise on quality. It has been a seamless transition and one that will continue to develop, making it easier for you to love your finances.


Thank you for reading!


Derek Notman