Confessions of a Former Financial Advisor
June 05, 2013I began my career as a financial educator 18 years ago, only they didn’t call me an educator. I was a 401(k) enroller and my job was to educate employees on the benefits of participating in their employer-sponsored retirement plan. I very much enjoyed speaking to the many different groups of people that made up the workforce but I wasn’t a big fan of the travel — and neither was my young, new bride.
After three years, I took on another role with the company, focusing on supporting 401(k) sales as an internal wholesaler. I enjoyed working strategically with our sales representatives and my wife enjoyed having me home most nights but I missed the interaction with the end users so after three more years, I left the 401(k) company and pursued life as a personal financial advisor. As a financial advisor, I was able to do what I loved to do, which was to help people make financial decisions but that’s not what I was paid to do. Instead, I was paid to sell investment products and the more I sold, the more I was paid.
Now it didn’t bother me that the products I sold had a commission — after all my family needed to eat too — but in my opinion, the whole system was stacked against doing the right thing. For me, doing the right thing meant helping the people that needed the help most but these people did not always have a lot of money to invest. Regardless, I was committed to helping everyone, even if it meant little or no sales commission.
For this reason, I struggled financially and I might still be struggling to this day if it wasn’t for someone approaching me with the idea of becoming a financial educator. As a financial educator, I would be able to do what I enjoyed most — helping people make financial decisions — without being required to sell anything to make a living. My guidance would be available to everyone, regardless of their net worth or investible assets, and I would be free from any conflicts of interest. Finally, after twelve years, I had found my calling and that is why I chose to become a financial educator.
I don’t mean to suggest there is anything wrong with working with a financial advisor. To the contrary, I know plenty of good, honest, ethical financial advisors out there that are committed to doing the right thing for their clients but even I will admit that there were times when my advice was influenced by the amount of income I would receive from a sale. Before you choose to work with a financial advisor or if you are already working with an advisor, consider the following:
Is there a conflict of interest?
When I was a financial advisor, I was paid on commission. This naturally presented a conflict of interest since my paycheck depended on my ability to sell a financial product. I was obligated to inform my clients that any product I offered would carry with it a sales charge but not all financial advisors are compensated this way. Some are compensated for assets under management while others simply charge a fee for their advice. Since fee-only planners, such as those affiliated with NAPFA, ACA, or Garrett Planning Network, are paid regardless of whether or not you purchase an investment product, they are often seen as having less of a conflict of interest.
Are you paying for advice or service?
Financial advice is available online, on the radio, in books, and possibly through your retirement plan provider but all the advice in the world doesn’t do you any good if you don’t execute on the plan. That’s what a financial advisor can do for you. They can open an account, recommend an investment, place a trade, and re-balance a portfolio, all based on information you provide. These are certainly things you can do on your own and if you are so inclined you may not need the help of an advisor but if the thought of doing this is intimidating, let the advisor help.
What benefits does your employer offer?
One reason I may have failed as a financial advisor was my propensity to encourage my clients to maximize their benefits at work. For example, I insisted that my clients save in their 401(k) at least enough to capture any matching funds before they considered opening an IRA with me. In addition to your retirement plan, what other benefits does your employer offer? Does your 401(k) offer investment advice through online tools and resources? Do you have access to group long-term care insurance? Are you taking advantage of commuter allowances or flexible spending accounts? Many of these benefits come with tax advantages and low expenses so be sure to take full advantage of them.
These were just a few of the issues I struggled with when I was a financial advisor. Now that I’m a financial educator, I don’t suffer from these constraints any longer.