The simple answer for most people will be yes, but there are huge differences between what your financial goals are and who you should think of for an advisor. Take in some of this information below to help you decide what is best for you and to protect yourself from working with the wrong people that could cost you tons of your hard earned money in fees, and could not actually be the advisor you were thinking they were.

First, let me soap box this topic. I hate the term “Financial Advisor”. It is freaking dumb (and I previously was a Financial Advisor). Most terms for financial professionals are dumb because they are confusing. Do you know how many career fields can call themselves a Financial Advisor or financial something? The terminology is waaaaayyyyyy to loose and makes many people who are actually just sales people look like they are doing what is best for you and your finances (when they often are just selling products that may or may not pay them crazy high commissions or fees). Don’t fall for the deception.

Here are a number of “Financial Advisors” or “Financial Professionals” that you may come across:

1. Life insurance salesman/saleswomen.
2. Other insurance salesman/saleswomen (disability insurance, accident insurance, long-term care insurance, etc.).
3. Annuity and mutual fund salesman/saleswomen.
4. Financial Coaches or Money Coaches (budgeting, etc.)
5. Stock Traders or Bond Traders
6. Other Investment/securities Brokers
7. Robo Advisors
8. And then a large variety of credentialed individuals (who should be looked at more as actual Financial Advisors) – Certified Financial Planners (CFP), Chartered Financial Consultants (ChFC), Chartered Financial Analysts (CFA), and so on.

The main point is if someone tells you they are a financial advisor, ask for more information. What are they licensed in? What are their credentials (letters after their name)? Are they commission based or fee based as far as how they charge their clients and get paid? Etc. If someone has passed a couple Series exams (investment product sales examinations) or a life insurance or health insurance exams, that does not make them a true advisor, it allows them to sell investments and insurance. Big difference.

Just to emphasize my soap box, even though their is testing and credentialing available to further the education of “advisors”, there is no entity that really requires minimum standards for someone to call themselves a “Financial Advisor”. There is not a certain test or a certain level of education to have the title. This is not good and leaves people who need the help vulnerable to misinterpretation of what they are actually receiving from the “advisor”.

To simplify what I am saying, I would recommend thinking of advisors more like this in your mind:

There would be three types of “advisors”.

1. A Investment or Insurance Product Specialist- one who is licensed to sell you individual stocks or bonds, mutual funds, exchange traded funds, Real Estate Investment trusts, life insurance, and so on (dependent upon what tests they have passed to be licensed and qualified to sell the individual products). Traditional testing the “advisor” would pass for this “Product Specialist” type title would be life & Health Insurance exams and Series exams like the 7, 6, 65, etc. These individuals are licensed to sell products that are financial products. To me this is very different than a true advisor.Or
2. A Financial Coach – someone who is qualified to teach and coach you through budgeting, debt management, savings steps, and basic financial literacy/education. A traditional certification you would see in this role would be the Accredited Financial Councilor (AFC). This position is usually paid on a fee basis (hourly, monthly) and does not receive commissions for products (because they are not licensed to sell products, traditionally). ONE QUICK NOTE WITH THIS CATEGORY, financial coaching is not as wide spread as it should be in the US. It can be hard to find a financial coach in your area. Midwest Money Mentor does help with financial coaching so feel free to check that area out on our site for more information. Or
3. A Financial Planner ( an actual Financial Advisor) – these are individuals who have not only passed exams for product knowledge and sales, but have studied and passed much more rigorous education and testing, just like a CPA or an Attorney would. As mentioned above, you could see CFPs, ChFCs, CFAs, and others. Their job is advice and you hire them to help with tax reduction planning, estate planning, investment management, financial planning, and more. Traditionally they are fiduciaries (fancy word meaning they are more legally bound to put your interests first) and often paid on more of a fee basis or management basis in comparison to commissions for products.

Does that help simplify the titles for you? Hopefully so.

I do need to point out here that though I may sound like I am criticizing the “Product Specialist” category for not being true financial advisors, that does not mean that those individuals are never people you should work with. What I am criticizing is that I do not believe they should be called Advisors. They do not get paid to advise, they get paid to sell certain products. Looking back, when i was a “Financial Advisor”, I would not feel comfortable classifying that employment position as a true “advisor”, today. But, each category of “advisor” I lay out above does have their place. Here are a couple examples.

If you are just getting started in your financial journey, you very likely have no need to work with a true Financial Advisor because you do not have a large quantity of assets that need managed or a complicated financial picture that needs advanced planning. So, in the beginning you could work with:

1. A financial coach or educator. It is often smart to start with a financial coach or financial educator because what most everyone needs is to be taught and led through the foundational steps of personal finance. Budgeting, financial education and understanding, emergency fund set up, debt management, credit repair or credit score boosting, and basic investing knowledge are all things a financial coach can help with. Honestly, if most American’s solely went through education and coaching in these areas with a financial coach, there would be very few people struggling financially (as long as they listened and took action, of course). These pieces that coaching helps with are the core aspects of your finances and if you understand and take consistent action in these areas, most of your financial future will fall nicely into place.
2. A Product Specialist. Once you do have the basic understanding and foundation set up of your personal finances, you still will likely not be in a position to work with a full fledged Financial Planner/Advisor category because you still will not have many assets to manage (more than likely) or a complex financial picture (yet). But, you may wish to start investing more because you now have your budgeting and foundational pieces in place. You also likely need to get some more life insurance and other protections in place for your family (the insurance portion of finance is equally important to investing, budgeting, estate planning, etc.). Working, then, with a “Product Specialist” can get you the insurance products you need, and potentially some basic investment accounts outside of your 401k or work sponsored plan.
   1. A side note here – depending on your personality and the education you received (in this step-by-step example – from a Financial Coach, but in other ways also) you may feel comfortable being a Do-It-Yourselfer in some areas. It is difficult to be a Do-It-Yourselfer when you need products like life insurance, so some type of Product Specialist will likely be needed at some point to cover those basic steps. But when it comes to investing in simple product types like index mutual funds, Roth or Traditional IRAs, and some other basic pieces, you may find you are more than capable and comfortable to just do it on your own. If so (making sure you emotionally are comfortable as well), you could avoid the high costs that often come with working with a stock, mutual fund, annuity, and other Product Specialist and instead put that money towards investing more and building your wealth faster. But, the average investor often does worse in overall investment returns than someone working with an “advisor” (according to multiple studies). This is found to be because they (the average individual investor) do not have someone to check their emotional decisions during times of market turmoil. Meaning, people freak out when the markets are very high or having large drops, and jump in and out of the market. Trying to time the market has been shown over and over again to have poor results. So, you need to make sure you are emotionally ready to manage the risks of investing on your own.

Finally, once you have your foundational financial pieces in place and you are beginning to amass a pretty decent sized net worth (I’d probably say at least $100k) you can start the conversations with the “Financial Planner/Advisor” category of financial expert and have them optimize and stress test your financial house to help you reach your goals from there.

A quick note, though Midwest Money Mentor believes in and recommends most people to work with a Financial Advisor of one type or another, Midwest Money Mentor does not specifically work with a Financial Planner category “advisor”, as defined above. This may appear that Midwest Money Mentor is pushing an agenda that it does not follow, but I want to point out that my comfort level and educational level with personal finance is higher than the average person. This does allow me to complete the bulk of my financial steps with my own knowledge and skills. Though, I still have used product specialists for insurance purposes, and I still use specialist such as Accountants and Attorney’s for my tax and estate planning.

Now that we have soap boxed our way through much of this information, we can go on to part 2 of this blog series. There we will go through more of the positives of working with “advisors” and the negatives you need to be aware of. We will also define what type of investors there are (and which one you are) to help you choose if you should work with an “advisor” or not.

See you THERE!!!!!!