When You Need a Financial Advisor and How Find the Right One with Peter Mallouk (CEO of Creative Planning)

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2:53Otherwise, 1.00 % APY applies. No min balance required. Chime card on-time payment history may have a positive impact on your credit score. Results may vary. See Chime.com for details and applicable terms. I'm Nicole Lappin, the only financial expert you don't need a dictionary to understand. It's time for some Money Rehab.

3:16Hey, Money Rehabbers. It's Morgan, the EP of the show. It's January 15th. How are those financial New Year's resolutions going? You know, we've been doing this show for four years now, and we hear the same pain point from money rehabbers over and over again around this time of year. Maybe you're feeling it too. It goes like this. You set a financial goal. Maybe it's buying your first house or an investment property or retiring with enough money to take your family on vacations or sending your kids to college. or maybe you're just killing it in your career and you want to know how to make your money work harder for you.

3:55Whatever your goal is, you've set it, you feel excited about it, you're ready to make it happen, and then you realize that you don't actually know how to get there. Setting goals is not something you can outsource. That is deeply personal and just depends on how you want to live your life. But making the strategy to help you get there, that is something that you can outsource to a wealth advisor. But I get it. It can feel really overwhelming to let someone into your financial life. So today, you're going to hear a conversation between Nicole and Peter Maluk, CEO of the award-winning wealth management and investment advisory firm Creative Planning.

4:37In this conversation, they talk about when to hire a financial advisor and how to find the right one for you. And they get super granular, even down to what you should bring with you in your first meeting so that all of the guesswork is taken out. This conversation should make you feel like you're ready to take the next step. And when you are, well, I'll tell you exactly what to do at the end of the episode. But first, here's Nicole and Peter. Peter Malouk, welcome back to Money Rehab. Great to be back, Nicole. So we've nerded out a lot on this show about many different financial topics together, but we haven't yet covered the one that I imagine is your favorite, which is finding the right financial advisor.

5:19So let's start with a question that I think some listeners are asking themselves, who should have a financial advisor? I think anyone that's in a realm where they're investing and they've started to reach a place in their life where, to me, if you have less than$50 ,000, you should be putting everything in the S &P 500. So if you start to get over that amount, definitely over$100 ,000, that's when it makes sense to reach out to an advisor because the advisor can start to bring different investment options, change your allocation, make it global, add small, add bonds, even add private investments as your account continues to grow, where you can start to have a chance to outperform the public markets by owning private things like private equity and private lending.

6:01And also it becomes a little more valuable to start to tax manage your investing and your just generally your life to try to reduce the tax bill as much as possible. So those are thresholds to think about where it might be time to reach out to an advisor. So probably when you hit 100K in savings. That tends to be like the, I think, the perfect spot. So let's talk about the vetting process. What are the qualifications for a financial advisor. What are the must-haves and what are the nice-to-haves? All right. So the must-haves, I like to call them the Cs. And let's start with the first C, which is custody.

6:39You never want to work with an advisor that takes custody of your money. It just puts it in their own accounts. If you think about Bernie Madoff and that crisis, people who hired Bernie Madoff literally wrote a check to Madoff Investments, and he went and put it in his bank account. You never want to work with an advisor that does that. So this is an example at Creative Planning. We custody our client's assets primarily at Charles Schwab or Fidelity. A client never writes a check to Creative Planning. They write it to Schwab or Fidelity. It's custodied somewhere else. And that's the safest way to work with an advisor.

7:09Most advisors work that way. That's a must have. I think the next is credentials. You want a team that has credentials. If you're getting tax advice, make sure it's a CPA. If you're getting legal advice, and believe it or not, a lot of non-lawyers are giving legal advice, make sure that person has a JD, they're actually a lawyer. And financial planning team should always include someone with a certified financial planner designation. nation. I also focus on credibility, like how much experience does this firm have with people like you? Do they work with a lot of people of your profile? If you've got 250 ,000, you want a firm that's working with a lot of people that have$250 ,000.

7:48And if you've got 10 million, you want to work with a firm that has a lot of people that have$10 million. Many firms just cover one area or they don't have a lot of experience in that space. You don't want anybody to be learning on you, just like you don't want to go to a doctor that doesn't do the kind of surgery you're going to have all of the time. You want somebody who's really used to seeing that. And the way we remedy that at Creative is we make sure there are groups that serve all of these different people. So they're dealing with specialists all of the time. And then I think cost matters.

8:16You want to make sure that, hey, what am I going to get? And what am I going to pay? If I'm going to pay a money management fee, is it going to be customized to me or not? Are you going to do a financial plan for me? Is that financial plan included? Am I going to get tax advice? Is it included? Make sure that you understand that you're getting value for what you pay for. And the most important thing is make sure you're working with a fiduciary. Make sure you're working with somebody that has to be a fiduciary to you 100 % of the time, no exceptions. This means no brokers, no duly registered advisors.

8:47Make sure you're dealing with somebody who is investment advisor only and only serves as a fiduciary all the time. So no broker, what are the certifications that brokers have that should be red flags if this person has them too? So if you go to the website of the advisor and on the bottom, it says FINRA, F-I-N-R-A, FINRA is regulating them or they're a part of FINRA. That means that they're a broker at least some of the time. The people in that firm are registered as brokers. What that means is they may have their own investment products. They may get paid on commissions. They may receive revenue sharing.

9:25Instead, you want a firm that is not registered with FINRA. That means that firm is an independent advisor only and is a fiduciary to you all the time, meaning they have to act in your best interest all the time. They can't receive commissions and hidden fees and things like that. It's so important because sometimes they're sneak attack. And then all of the acronyms and alphabet soup sometimes sounds the same. That's right. Brokers, if you say, hey, are you a fiduciary? most of them will say yes, because in some circumstances, they are. So it's a very confusing marketplace. And knowing the trick on how to tell the real difference is key.

10:00Yeah, Bernie Madoff was a fiduciary. So yeah, something really important to dig into and ask and try to not be scared of asking. I think that's the intimidating part. Can you actually go through and straight up ask a potential financial advisor, how many clients do you have that have my net worth? What are your credentials? And go through the three C's. A hundred percent. Yeah, absolutely. I think whatever your wealth is, you want to, when you're talking to the firm, just ask how many people like me do you work with? And you don't want to hear 20. You want it to be a very significant amount. I remember when I went and got LASIK surgery many years ago, it was pretty innovative at the time.

10:40I looked for the person that did it more than anyone else. And the biggest things in your life are your health and your wealth and in terms of handling them correctly. And so making sure someone's very experienced is key. The first time I met with a financial advisor, I was so intimidated. I was so nervous. And I think a lot of people are and they're not exactly sure what to expect. Are there beyond the three C's specific questions that you should go in prepared with for your first meeting? I think you want to walk somebody through, you want to make sure you tell them what you want. Here's where I am today.

11:13Here's what I'm trying to accomplish. You want to go through those C's that we talked about, make sure they're fiduciary, but you want to understand their investment philosophy. What type of investments are we going to buy to get me from here to there? If they talk about how they can beat the market or they're going to market time or you're going to pick the right stocks, it's probably not the right place to go. Those are antiquated approaches that lower the chance of you hitting your goals. I think understanding what other services do you have? Are you going to be able to give me tax advice, legal advice, insurance advice, planning advice?

11:42And then is there a certified financial planner that's gonna build a plan for you to get you from point A to point B? I think having those components is gonna go a long way towards narrowing the field. There's 380 ,000 advisors. If you make sure that you do not have a broker, now we're down to 10%. If we make sure we've got one that's got the scale to serve you that works with a lot of clients like you, you're probably gonna get down to 1%. You start to go through these other questions, you can really get to the right person. Do you need to come prepared with anything? What should you expect to show from your own financials?

12:15I think at least bringing your investment statements, right? So being able to say, here's how I'm invested today. I don't know that the first meeting with that advisor, you need to bring everything in the world, you need to bring your legal and your tax and so on. But I think at least bringing your investment statements is going to be enough to create a dialogue about what you're doing and how they might approach things differently. I think for people that are intimidated by meeting with an expert, it might be helpful to remember that you're the client. So if you're nervous, you might feel like you're the one auditioning, but you're actually the one that's calling the shot.

12:46So the financial advisor, there are so many of them, as you said, needs to impress you, not the other way around. A hundred percent correct. The advisor needs to impress you. You do not need to worry about a thing. Yeah. I'll never forget just the sweat that I felt the first time I had these types of conversation. When was this, Nicole? I'm having a hard time to visualize it. Years ago, I talked about it in one of my books that she mentioned tips, and I thought that I was supposed to tip her. I didn't know that they were treasury inflation protected securities, obviously, Peter. That's hilarious.

13:22So you mentioned surgeons earlier. People feel tempted to lie to financial advisors a lot in the same way that people feel tempted to lie to a dentist about how much they really floss or a personal trainer about what they're really eating. We want to do the right thing. So sometimes we might be aspirational. I guess that's a nice way to put it in our answers when we talk with a financial advisor about how much we actually save or invest. But just like with a dentist, it is super important to be honest with how much you really floss or don't floss and how much you actually have or don't have or what you're doing and what your habits are.

13:59How would you recommend people get through that anxiety of being brutally honest? I think that the goal here is you're going to the advisor and you're taking the step because you want to get to the right place. And you're just hurting yourself by keeping anything from the advisor. And so a lot of people will, they own a certain investment there, they might be embarrassed about it, or they don't think the advisor agrees with it. So they won't tell the advisor about it. Or they talk about a savings pattern that may not be doable. These can result in the wrong recommendations. And so So I remind myself when I go to the doctor, there's nothing I'm going to talk to the doctor about they haven't seen or heard before.

14:34Same thing going to the advisor. They just want to help you get to where you want to go and just be as open as you can with them. Let's continue to double click on this first meeting that you might have with a financial advisor. This first meeting is free. It should be free, right? So you have nothing to lose. Yeah, it definitely should be free. I know there are some that charge for that first meeting, but you definitely want it to be, I wouldn't go to the advisor if it were anything else. And so this is just an exploratory meeting. This is for you to understand, is this a person that I feel comfortable giving my money to everything I've ever worked with so that they can, under their guidance, help me get where I want to go?

15:14So this should be a discovery meeting with no charge. Are there any red flag type questions that a potential financial advisor might ask that is TMI or you shouldn't go into if they're asking you about taxes or any specifics? Or is everything really fair game? Because sometimes it can feel like a financial colonoscopy. Right. I think it can feel pretty intrusive, but I think everything's fair game because the advisor really wants to understand what's going on. And so if I know what's going on with tax, I know what your estate plan is like, and I know if you have kids, and I know if their college is paid for or not paid for, do you have accounts set up or not?

15:53Are you funding your plan at work. This is a lot of information, but it really is first meeting information because it's only understanding that stuff that we can say, okay, here are the types of accounts we need to set up. And here's the way we're going to reduce your tax bill. And here are the kinds of investments that make sense for you. And so I would be prepared in that first meeting to be asked a lot of questions. And insurance, potentially. Yes, and insurance. So a red flag, yeah, red flag is when they want to sell you insurance as an investment vehicle, but they'll definitely need to ask about insurance.

16:29Hold onto your wallets. Money Rehab will be right back. And now for some more Money Rehab.

16:42So once you find an advisor that you like and you narrow it down, who is a fiduciary, Who doesn't have FINRA regulating them? All of these types of things. You're down. If you whittled it down, you find somebody that you like, which is important, by the way. And you should be able to feel comfortable telling them the biggest things in your financial picture aren't what the Dow is doing. It's if you're going to get divorced or not. And you should feel comfortable talking to your financial advisor about that, right? A hundred percent. And I think you said probably the most important thing. And it's what I didn't touch on earlier.

17:16the most important thing is that you like and trust your advisor. You have to be comfortable with this person because you're going to be seeing them a lot, talking to them a lot, even if they check every box, right? They're a fiduciary. They're not a broker registered with FINRA. There's no conflicts when it comes to your money. There are no commissions. They don't take custody. They're competent. They have the right designations, but you don't feel comfortable. It's not the right advisor for you. Make sure that you're very comfortable with whoever you're sitting across the table with. if you're working with a firm that has more than one person, you like the firm and don't connect with the advisor, ask for a different advisor.

17:50They won't get their feelings hurt. They might a little bit, but if they're adults and professionals, they'll get over it. But it's your money. No one's going to care as much about it as you at the end of the day. And finding somebody that you can tell those things to, I'm having a baby, I might be getting married or I might be getting divorced. These all have so many different implications across your financial picture. What should you ultimately expect your financial advisor to do for you? Like how much access will they have? How much control will they have? The advisor should work with you to develop a personal plan to figure out what makes the most sense for you to own.

18:27They should show you all the investment things they recommend. And then when you reach an agreement, they should go ahead and place those trades to make those investments. They should maintain the account, rebalance when necessary, other trades that you've agreed on when necessary. They should keep you on your savings plan. They should at least do an annual review of the financial plan, and they should be available to you throughout the year, all the time when you have financial questions about anything that impacts you personally. So they should maintain the accounts. Which accounts specifically, just your brokerage or your bank accounts as well?

18:59Just your brokerage. So IRAs, taxable investments, things that you would hold at a custodian like a Fidelity or Schwab, your bank accounts where you keep your checking and savings, those should stay with you. And if you have a 401k from your job, will a financial advisor manage that for you? So some financial advisors have the technology to connect to that and manage it for you directly. Some plans don't allow you to do that or advisors don't have that capability. So instead, they'll pick what's going on there. They might go online with you in the room and help you fix that or get on the phone with you and help you get it where it needs to be.

19:33And sometimes some advisors just keep it totally separate. I just know at creative planning, we incorporate it into the investments and the plan, but that will depend on the advisor you're working with. And then how much do they have to do with taxes? Do they correspond with whoever's preparing your taxes? Would they help you at all with that? So most advisors don't do anything with taxes. Some will at least get materials together to give to your CPA. And some advisors are very involved in tax. At Creative Planning, we are very involved in tax. We try to control the capital gains tax of the portfolio.

20:07We try to reduce income taxes. We do tax planning sessions with our clients. And for many clients, we prepare tax returns. And so it's really a function of the advisor. Financial advisors, the majority of them focus on investments. Some also include financial planning. I think that's mandatory to have financial planning. And some go the extra step and also do tax and maybe even legal. Or estate planning. Yes. Or recommend. So you should think of your financial planner as the hub with other spokes coming out, other subject matter experts. That's right. And how do you tell if it's working? In other words, how do you define success with your financial advisor?

20:45So I think a couple of things. I think one, are you getting the communication that you need from this advisor? So if they're not calling you back, if you're not getting in your views, it's not working. Everything else doesn't work. It's time to get a new advisor. If those things are being met, we're looking at performance. Like we have an idea of where you are and what you're trying to do. On track doesn't mean your portfolio's up 50%. It just means compared to what the markets are doing, how are you doing? Are you somewhat tied to those things? If the market's up 20 % and you're up 2%, there's a problem.

21:15So we need to figure out what's going on there. How are you comparing to the benchmarks that you're up against? Are your large stocks, how are they doing compared to the S &P 500? Are your small stocks, how are they doing compared to the small cap index and so on? And then also, are you able to solve your other problems? As you have a question about how to refinance your home or whether you should buy or lease a car, are you getting the answers that you need to those questions from your advisors? Are they able to help you outside of that as well? And when you look at your performance compared to the corresponding index, how much more would be success to you?

21:51To me, it's if in the public markets, if we can match the index, you're doing great. So if you're part of your portfolios and large use stocks and you're tracking the S &P 500, that's great. If on an after-tax basis, you're doing better, that's amazing. If you own private investments, you should expect over time to beat the public markets. If that's not happening over a five-year period, there's a problem. And of course, you have to compare your bonds to the bonded next. We can't compare the bond part of a portfolio to the stock market. The bonds will always do much better or much worse because there are different types of investments entirely.

22:24And how often should you meet with a financial advisor? I love to at least once a year at a minimum. So where you're just going through everything and just going, look, I know we're communicating throughout the year, but I want to make sure nothing got missed. So you go repeat an entire process again. What's your net worth? What's your retirement? What's going on with education? Are the insurance needs covered? Have we done all we can to mitigate taxes? Is your will and trust correct? So it's just this check of everything to make sure that through all the phone conversations and Zooms and emails throughout the year.