Suze Orman is a self-proclaimed “financial guru” and has been called “a force in the world of personal finance” and a “one-woman financial advice powerhouse” by USA Today. She has put together an impressive career as a television host, bestselling author, columnist, producer and motivational speaker, to name a few of her undertakings. What you might not remember, however, is that before hitting the mainstream and preaching about the world of financial planning, she too was a financial advisor at Merrill Lynch and Prudential before starting her own independent shop.
Given Suze’s experience in the industry and books published with such authoritative titles as The Nine Steps to Financial Freedom and The Road to Wealth, one would think that she has nailed the steps necessary for seeking financial advice and achieving financial freedom. But reading some of her content, such as Client Beware: How to Choose A Financial Advisor suggests quite a different story.
Like Suze, we see the financial advisor selection process as inherently difficult. We recognize the challenges of building trust between advisors and prospective clients, and created our Ask an Advisor platform to simplify this process. We believe in providing people with full information and transparency and enabling them to find an advisor that fits their particular needs. Yet, Suze’s nine-part lecture on choosing an advisor fails to recognize the individualized nature of financial planning and the personal touch necessary for high quality relationships.
Let’s take a look at some of Suze’s advice:
(1) Any financial advisor who calls you cold—whom you don’t know and have never heard of—should be sent packing. Hang up. A successful advisor doesn’t have to look for clients. Clients seek her or him out.
- To say this is extreme would be a wild understatement. It is very common for advisors to reach out to new prospective clients to explore ways that they can work together. Rather than hang up, request a website, credentials, and other background information. A legitimate advisor hustling for business would be happy to provide you with this (and more) information. Every advisor has a story to tell.
(2) If an advisor has time to come to your home, something is probably radically wrong. When I was seeing clients—long before I wrote my first book—I didn’t have time to breathe, let alone get in a car and drive for half an hour across town to a client’s home and then drive back again.
- Financial Planning is a very personal business. An advisor who makes the time to come to your home likely values your time and the relationship that he or she has built with you. Why would you want to work with an advisor who was too busy chasing new clients to make time for you?
(3) An advisor should be a Certified Financial Planner, or CFP® Professional, just as I am. That means that he or she cares enough about his or her clients to have gone through a two-year certification process, with continuing education requirements mandating that he or she stay up-to-date on the kinds of information that you need.
- The CFP® certification is certainly one of the better known designations in the world of financial expertise, and ensures that an advisor has a proven level of competency with regard to financial planning. However, it is not the be-all end-all. There in no central certifying body in financial services as there is in law or medicine. There are a variety of other designations with comparable education, experience and ethics requirements (CFA, CPA, to name a couple) that may be just as, if not more, valuable, depending on the type of services you are in need of. You can read more about common advisor certifications in the FAQ section of our platform.
(4) You should be told up front how, and how much, a potential advisor will be paid. You shouldn’t have to ask. The correct method of payment is by fee only. Any advisor who wants to be paid through commissions charged on the investments he or she makes for you has an incentive to move you in and out of stocks and other investments, perhaps in direct opposition to what’s best for you.
- I could not agree more that any costs incurred working with an advisor should be explained up front. However, there is no “correct method of payment”. Although fee-only compensation (wherein advisors are paid solely by their clients and not through commissions or referral fees) is preferable for some, a commission-based model may be more appropriate (and less costly) for individuals who are more self-directed or need assistance with only a segment of their financial plan.
So thank you, Suze, for your warnings: some are quite valid and remind people that you should do your research before hiring an advisor; others ought to provide a bit more context for your readers. Personal finance is, of course, very personal; individual circumstances vary greatly from client to client, and the advisor selection process cannot be summed up in nine simple rules.
Suze Orman image via Shutterstock