Originally I prepared this list for the start of the 2020’s ringing in a new decade. Since we’ve been hit with the Coronavirus I’ve updated it slightly to adjust for this health crisis. Every crisis brings change in pretty much every field and financial services is no different. Here are five ways the best financial advisors are looking to separate themselves from the masses and items investors should carefully consider when looking for assistance.
- The best advisors utilize and offer a true big picture, financial planning approach. This involves conversations and ways to manage your full situation. It’s not just about how much money you have or how much you can afford to invest each month. Your investments should be married back to your big picture plan which includes knowing your monthly cash flow, checking and savings ranges, emergency fund, amounts of life insurance, employer benefits, when you plan to retire, monthly expenses, ongoing projections of how long your money will last based on lifestyle needs, risk tolerance, controlling taxes, managing debt, family concerns, etc. The industry has made some strides here, but many advisors sadly are only focused on the amount of assets that are brought to the table.
Independent advisors are the first place to look to coordinate your big picture and investments together. More and more colleges have added financial planning degree programs and the Certified Financial Planner (CFP®) designation continues to grow at a rapid pace supporting an entire changeover from old school sales to new school advisors as more and more join the ranks each day.
- Fiduciary Advice. Simply put…do what is best for the client…period. The best advisors disclose all conflicts and do their best even before you knock on the door to minimize any conflicts that exist. This includes avoiding proprietary products (still offered at many of the big firms) or promoting certain lines of business only. Without getting too technical, make sure to ask if your advisor is a fiduciary.
- Coordinate your big picture with your CPA and Estate Attorney …There is little doubt that the tax code and distribution rules from IRA’s, capital gains taxes, estate taxes, etc. are going to be up for debate and change over the next decade. Politicians are getting desperate on ways to get their hands on your investments. Also, with the Coronavirus there has now been tons of new temporary rule changes ranging from payroll taxes deferrals for small business owners to rule changes on IRA’s for distributions. The number of changes in response to the virus is many and being able to coordinate with your team is important to stay on top and ahead of the pack. As the political landscape changes the best advisors stay up to date on tax laws, but they also keep your other professionals involved to maximize your after-tax return.
- A change back to Active Management…Since the Great Recession passive investing has been all the rage from Vanguard do it yourselfers to advisors recommending something similar to buy and hold. You can’t open any investment magazine without seeing an article as to why you should just own the index. Well, times do change and regardless of the recent Coronavirus bear market the longer-term trend of 40 years of declining interest rates is over. This 40 year decline in rates is largely responsible for fueling the passive argument and now that rates are back to basically zero this next decade will probably bring more volatility making it harder for a broad based index to compete. Throw in the political climate and investors should want to know their advisors have their hands on the wheel. The 2000’s were a lost decade for passive investing with two recessions and you could see the 2020’s do something similar. With that being said individual stock selection or following a strategy including periodic rebalancing could help you navigate the times better.
- Experience…The best advisors have experience. How do we define experience? The best advisors have helped their client’s through the two worst recessions of the last twenty years (2000-2002 & 2008-2009), by coordinating their investments back to a big picture plan…not by selling them product or ignoring a plan. There’s a number of people who sold life insurance, real estate, or recommended some stocks. That may count a little, but those who actually combined planning and managing money together during those years are a rare breed today. Surviving and thriving through the tough times is something the best have in common. I’d also add there are many pretenders out there with little to no finance background. This tends to lead to very general industry advice and for those who are looking to get ahead you’ll need custom recommendations to your situation. This type of experience will be helpful for those investors who “Plan to Rise Above” in the 2020’s.
These 5 ways can be vitally important to making your situation better if you’re looking to get back on track. Not in my list above, but one other notable item left off is ability to connect with you on your terms. With people’s work situations changing, some client’s have embraced technology and enjoy using Zoom to communicate. Others still heavily rely on email. I’d say most still prefer the phone, but we’ve seen that slowly begin to slow a bit. Top advisors have backups on their systems and an ability to work remotely just like you. Flexibility to service you is key and while it may not be in this top five list, it must be number six following Coronavirus.
We hope this finds you well. Keep us in mind as a resource if you’re searching for assistance.