If you’re shopping for financial planning advice, how do you know whether you can afford it? Who’s going to tell you?
If you’re shopping for, say, a high-end refrigerator, you probably already know you can’t rely on the salesperson to say, “You know, I really don’t think you should be buying this; it has a lot of features you really don’t need and can’t afford.” If you can come up with the money, they’re going to sell you the product—and rightfully so. It’s not their job to tell you what you can afford; it’s not their position legally to be looking out for you. That’s your responsibility.
Is financial planning any different? Yes, it is—as long as you are not dealing with an advisor who is compensated by commissions or selling financial products. I’m talking about a fee-only financial planner who has a fiduciary duty to act in the client’s best interests.
A fiduciary planner is an advocate. Advocacy is in the heart and soul of a fiduciary fee-only planner. It’s one of the big reasons that they’re in a fee-only practice when they could make much more money selling products. They are committed to a mindset of, “It’s my job to look out for you, the client.”
At times, looking out for the client means telling someone up front, “It makes no sense for you to be paying me.” Does that really happen? Yes, it does. I cannot tell you how many times that I’ve told prospective clients, “If I were your financial planner, I would tell you that hiring me is not a good financial decision.” Many times, when I’ve interviewed someone, their income and other circumstances just don’t justify paying for the full financial planning service my firm provides.
Sometimes I have helped these folks with a few suggestions to point them in the right direction. Sometimes the best option for them might be what I call “yellow pad financial planning.” This is paying for a one-time consultation, which depending on the planner could cost from around $250 to $750 an hour, and which could be the best money you ever spend.
I understand that, emotionally, there’s a lot of fear around the idea of consulting a planner and wondering, can I afford this person? How will I know? Because we just don’t see it as normal for someone offering a service to refuse to provide it on the grounds that you can’t afford it.
In reality, there are professions where that is normal. Attorneys will tell you if you don’t have a case that is worth pursuing. I could see accountants turning down or referring clients who can’t afford or don’t need their level of expertise. Even ethical salespeople will sometimes say, ‘I’d love to sell this to you, but I just can’t because it’s not a good fit.” With a fiduciary fee-only financial planner, the legal responsibility to put your interests first extends to the fee that you pay to them. So one of the most important ways you can take responsibility for yourself and protect yourself is to make sure that any financial planner you interview is a fiduciary who is compensated solely by fees. When that is the case, you can have some confidence that part of their fiduciary duty and their responsibility to be an advocate is to be honest and disclose to you when they really think that hiring them is not a good deal.
Check out The Financial Therapy Podcast by Rick Kahler concerning this topic.