Who's Going to Help You?

Todd Washburn |

  This time of year one resolution on many lists is to get finances in order.  It might be getting out of debt, figuring out if you’re ready for retirement (or at least on track), or aligning your investments with your goals.  Correspondingly, there are many folks ready to help you.

   The question is- who’s who in the financial advising world?

   It would take a small book to go through all the variations of advisers out there, but here’s an overview of the major “players” in the game.  A broad classification would start with, I think, specialized vs. comprehensive/holistic advisers. Specialized advisers do the majority of their work with a specific product (i.e. insurance, taxes, or investments) or a situation (i.e. divorce or business succession planning).  For the former, their specialization may be the result of limitations set by their company.  They work for an insurance company, and they’re paid to sell insurance.  They might do some investments too, but their core offering is insurance.  It’s similar for others in the investment industry.  Both might do some “financial planning”- but it usually only touches on issues related to the core product they’re selling.  For the situation specialists, they may do much broader planning, but they focus on the needs generated by a specific situation.  I.e. figuring how to value/divide assets for a divorce.

   Comprehensive or holistic advisers look at the bigger picture and cast a broader net as to what they work on with clients.  They may help with insurance, estate, retirement, debt and investment planning.  They may or may not sell products associated with those situations- or instead work with specialists in those areas.  Their focus is often to help a client integrate and manage all the pieces of their financial life.  They work much like a family physician who helps maintain your overall health.  A specialist (cardiologist, dietician, etc.) might be needed from time to time, but usually the family physician/holistic adviser handles things.

   Another way advisers can be classified is by compensation and obligation to their client.  Some advisers are compensated solely by commissions earned when a client buys a product (i.e. insurance policy, investment).  Others are compensated solely by payments directly from their client (fee-only).  Some advisers are compensated both ways (fee-based).  An insurance agent- life, health, property/casualty- typically is commission-only.  This is the same with most traditional investment brokers.  “Fee-based” advisers collect a fee for preparing a financial plan and earn a commission for “implementing” (selling the recommended products) the plan.  Fee-only planners don’t sell products. They earn only what the client is paying them for their expertise/guidance.   Advisers who collect commissions, including fee-based advisers when selling a product, must satisfy a “suitability” standard of obligation to their client.  What they recommend and sell must be considered “suitable” or reasonable for a client in that situation (age, knowledge, situation, wealth, etc.).  A fee adviser by law has a “fiduciary” duty or obligation to a client.  That means the client’s interest must come before the adviser’s.  The adviser is obligated to give advice that is “best” for the client (the best that that adviser can be expected to know/have access to).

   Which is right for you?  That depends.  What are you looking for?  If it’s to buy life insurance or answer a tax question- a specialist may be your answer.  Are you looking for someone to review and advise on your global situation?  Then a comprehensive/holistic adviser might be best.  Fees vs. commission?  That’s a personal choice.  Some feel that fee planners have fewer conflicts of interest because they don’t need to sell a specific product to earn their fee.

   Why is Todd Washburn Solutions, LLC a fee-only comprehensive/holistic financial planning firm?  Honestly- I think it’s the best model for folks looking for a trust-based, on-going relationship focused on advising on and integrating their whole financial situation rather than just specific areas of it.  I chose fee-only because it frees me to work on the area you need help with- not just an area I need to sell something to get paid.  I’m neutral- and I think that’s important.