HerMoney Classic Mailbag: Financial Advisors 101
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Hey, everybody. I'm Jean Chatzky. Thanks so much for joining me today on Her Money. We get a lot of questions here, as many of you know, and I love answering them. I think you know that as well. But the topic that continues to come up time and time and time again

And time again is financial advisors. You ask about finding advisors, what to ask an advisor, how to break up with an advisor if they're not the right fit, and so much more. That's why I wanted to bring this episode with Pam Kruger back to the top of your listening lists.

Pam is the founder and CEO of WealthRamp, an SEC-registered referral service that connects consumers with vetted, qualified, fee-only financial advisors. In addition to her work at WealthRamp, Pam is the host of the investor education TV series Money Track. You may have seen her there. She's also the author of the Money Track podcast.

Method, A Real Person's Guide to Successful Investing. She is also a friend of mine, and I am so happy to have her with us again today. Pam, nice to see you. Great to be here. Hi, Jean.

Hey, so we've got a ton of questions and I think the best thing that we can do is just dive in and answer them. Are you game? I am ready to go. Okay. So this first one comes from Carrie and she writes, what can and can't an advisor help me with? For example...

How knowledgeable should they be in tax law for financial planning? I have a friend whose advisor had her invest directly into a Roth IRA when she was clearly over the income limit. He should have known that. Can you tell me what kind of questions I should be asking a potential advisor so I know I'm not getting a dud? Well, Carrie, I just love that you put it right out there. And Pam, what do you think?

Carrie, it's a great question. We want to avoid all the duds in every profession. But advisors, to answer part of the question first, they do specialize. And we can talk about that in a second. But, you know, even when they don't specialize in tax planning per se, they do specialize in tax planning.

They ought to not be making a mistake like that with a Roth IRA. That's pretty basic. So that's more a question about the quality of the advisor. So some of the questions that you might want to think about asking when you're talking to an advisor for the very first time, and you're really trying to figure out how qualified is this advisor?

is first and foremost, you want to ask, are you 100% fiduciary held to the fiduciary standard all of the time? Meaning, when are you not legally held to this higher fiduciary standard? Hopefully the answer will be 100% because that's what we want. And really what that means is that legally, the advisor is legally bound and obligated to always act in your best interest

In other words, to not sell in wasted products, things like investments or funds that have a lot of fees where they get paid back a lot of commissions for selling those funds. And then you really, it's difficult to know if they're truly unbiased. So another good question to ask really quickly is you want to ask, and don't be afraid to ask this either. Just come right out and say, how long have you been established as a fiduciary advisor? I want to get a sense that this advisor has been

doing this for five years or more. That's what I'm looking for. I want to see that they've really been established and rooted in their practice. Who are your typical clients? What are you doing for them? Do you have a specialization? You want to know that right up front, especially if it's a specialization that doesn't align with what you're looking for. What credentials do you have?

Now that can be a little bit tricky because, you know, there's all kinds of credentials, but you, you know, you want to be looking for things like a certified financial planner, CFP or CPA. It can be, or a CFA. You want to ask the question and get a sense that there are credentials there. Finally, the last couple of questions real quick would be how many clients do you have? You yourself, how many clients do you have? Because you don't want to have an advisor that has a hundred or 200 clients. Then you're just an accountant.

You're really not a client. And then finally, you want to ask, what is your client retention rate? Meaning, do your clients stay with you a long time? A retention rate of 98% or higher. I know that sounds ridiculously high. It's a really good sign that the advisor retains those clients for a long time. That's a good sign. Hey, Pam, back to those specialties, right? We know that sometimes advisors come out

of the world of accounting. Sometimes they come out of the world of insurance. Sometimes they come out of the world of investments. Is one better than another? I mean, does it matter or should you just know?

it is better to know which kind of a specialization the advisor has. Let me give you an example. If you had a child on the autism spectrum, that might mean that you need to save for a third retirement. In other words, you, your spouse or partner, earned a third retirement for the rest of your life to support that child. And so I'd rather have you talking to an advisor who's actually had experience with special needs trusts

Or same thing if someone has a situation where they have stock options because they work for a startup. Those are very specialized, complex tax planning options.

disciplines around those kinds of stock options that startup employees have. So this is why we have so many different types of fiduciary advisors in my network. We have to be able to make sure that we match and align your specific needs to the advisor specializations so that you get an ideal fit. You know, sometimes we don't even realize that we have specific needs until we really start to dig in and ask ourselves, what do I really want from an advisor relationship?

No, I think you're totally right. And I think back about my brother actually has a son with severe autism and they have used an advisor who specializes in families with special needs kids. It's been incredibly helpful by the same token. I know women who like me have gone through a divorce and have used financial advisors who specialize in working with primarily women who are going through divorce. So it's important.

Along those lines, Anne writes, how do you find a financial planner who can also help with tax planning? Or do you need two different professionals to do that? Do some firms have their own CPAs on staff? What questions should I be asking a potential new advisor and or a CPA? So before you dive in on this one, Pam, Anne, I should just say I have come across financial

financial advisors who are also CPAs. I think they exist, but they're not incredibly common. More common, if you can find a financial advisor who will be open to having a relationship with your accountant or your tax preparer, it's really nice to have them in communication. I actually found

found my current accountant through my financial advisor. He made the recommendation because my former accountant was retiring. And that's turned out to be really great because they've worked together so much that the lines of communication there were already established.

I mean, what do you think, Pam? There was one financial advisor who was a source of mine for years, who was a financial advisor. He was a lawyer and he was a CPA. And that was just like, whoa, trifecta, but unicorn as well.

You described it perfectly. I want you to think of it as like left hand and right hand, because these two things are so connected. Your financial life is all connected. So naturally taxes are a big part of it. So the left hand needs to know what the right hand is doing. And there are a lot of fiduciary advisory firms that within the firm,

the firms, like on WealthTrap Gene, we have a lot of firms where you will find the CPA, if not wearing the hat of the CPA, because he's got both the credit or she has the credentials of both the CPA and the advisor right in house, right within the firm, they have a CPA. And in addition to that, if you have a CPA that you love working with, you can say to the advisor, hey, I really enjoy working. Like I'm a

Account's name is Dan. I really enjoy Dan. Can you work with Dan? And the answer is, of course. The advisor can work with your advisor.

The advisor can recommend an advisor for you or the advisor will be the CPA or have the CPA in-house. So that's what you really want to know is that, again, is the advisor established with a system already in place to help you get the tax help that you need? Beware the advisor who says, oh no, I don't have a clue. You'd have to go find your own tax accountant.

That's not an advisor I would want to work with. So they're used to working with clients that way.

Yeah, I think you're right. And let me just step in with the CPA credential there. And there are different kinds of tax professionals. And what you need may not be a CPA. There are CPAs who have very broad experience working with big companies, but who are not

particularly skilled in doing taxes for individuals. There's another category of tax professional called enrolled agents. And these are folks by and large who have many of them spent some time actually working at the IRS. They can be very, very helpful. And then there are people who are just

tax preparers who've gone through the training and know how to prepare taxes. So I don't want you to say I must have a CPA if what you really need is not a CPA, it's just somebody to do your taxes. So be clear on what you're looking for. That is such a good point.

Because there are times where you need tax planning and it doesn't have to be within an advisory firm. And it's not that you have to have a CPA. You have a specialist. You're absolutely right. CFP can sometimes be, because they're trained in tax planning as well. We got a question from Tara, and I love this question because I think it is the hurdle that stands between people and seeking financial advisors.

Do you have to have a minimum net worth for a financial advisor? If so, how much do I need before I get started? I've seen commercials before that say things like, you must have at least $750,000 before we will work with you. What's going on there? Younger people who have less assets often seem to be ignored and

If we can't find someone to help us early on in our careers, we might never grow into those high net worth individuals. Amen to that, Tara. What are our options for people just getting started? Yay, Tara. Thanks for asking this question. This is so important. So the answer is, do they all have minimums? Do they have minimums? Where are the minimums? The answer is yes, no, and sometimes. So...

Some advisors do have minimums. Some advisors have minimums that start at $5 million, $1 million. Some advisors, other advisors have minimums of starting at, you have investable assets that are $50,000 and some have zero minimum. And they will be helping people with their financial planning who are younger and get on track.

So younger people naturally, you know, they haven't had the time to save to meet the minimum of $750,000. So there are plenty of financial advisors and plenty of financial planners for every asset or income level. Lots of planners on WealthRamp.

have no minimums at all. They charge reasonable fees, again, to help you get on or to stay on track. We probably have, oh gosh, more than a dozen around the country within the WealthRamp network and

And what I'm looking for is beyond just the how much money I have and how much money the advisor will work with me if I don't meet that minimum. In addition to that, it's the other things that matter too. Does location really matter to you? Does gender really matter to you? Are you looking for a specific type of planning for a specific reason? So that's the reason that I ask these survey questions when you come to WealthRamp. I want to avoid

all those awkward conversations, especially about minimums, so that we're matching you, so that we won't have you have those conversations with the wrong advisor. The last thing we want is somebody who's just starting out to have a talk with a wealth manager who only has clients that start at $5 million and up. And let me just say, Tara, there are other resources for you as well. First of all, if you've got a retirement account at work,

chances are really good that that will give you the ability to strike up a conversation, have a consultation with a financial advisor, if not open the door to working with them. And sometimes this can be for free. So again, you're going to want to make sure that you ask all your questions so that you're in the right hands. But just so you know, you should not be stopped at the door because you don't have the money to meet the minimum. There are people that are willing to help you.

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I'm talking with Pam Kruger, founder and CEO of WealthRamp. We are answering your questions about financial advisors. Suzanne says, when working with a financial planner, how often should I meet with them if there are no major life events?

Suzanne, I can tell you what I do. I meet with my advisors in person on Zoom over the last couple of years, once a year, if there are no major life events. But we speak more often than that. We speak at least quarterly. And then if there's any decision that has to be made, if there is a major decision or a

a bond that's coming to a maturity and what are we going to do with that money? And is it okay to put it here rather than there? That's a very quick phone call. We get an update phone call. If the markets are having a bad day, week or month, I might get a phone call or I might make a phone call. And I think it's really, really important that you have the kind of relationship where you feel that those sorts of communications are important.

able to be started on your end as well as from the advisor? What do you think, Pam? Do you have a litmus test here? I think that these are all really smart questions. So talking about how often to meet with your advisor, it's completely up to you, but I'll share what most other people do. It's usually, like you said, Jean, it's usually the one or the two Zoom or in-person meetings that you can meet for coffee or meet face-to-face if you can't Zoom.

And then usually about four touches, I call them touches, touch bases in a year's time. Now, what happens if all of a sudden something's changed in you selling your house? Maybe you've moved it because you're moving because you've accepted a new job offer, a new role in another state. Things are changing around you. In that case, maybe you're on the phone with the advisor every other week over the course of three months because you can pick up the phone and you feel comfortable saying,

I really need to talk to right now because I need to ask a quick question. And I feel like I have someone with whom I can collaborate.

So because financial planning is dynamic, it's not static, it's dynamic, it's ever-changing, you're probably going to need to feel that the relationship is so collaborative that what's important is I can pick up that phone or I can text my advisor anytime and I know that I'm going to get a response and I feel like I can do that as many times as I need to a year. But usually,

Roughly once a year, twice a year in person, maybe four times a year otherwise, aside from times that require where there's more conversation because there are changes.

I'm glad to know I'm doing it right. Thanks, Pam. Question from Mary. Sometimes, as much as we may try to find the quote-unquote perfect fit with our financial planner, we find they aren't the person we need to manage our money for the long haul. And I know many women make a change in their financial advisor following a divorce or the death of a spouse.

My question is, what's the best way to kindly and gracefully break up with your financial advisor or CPA? Is there a better time to do this than others? So I've done this. Pam, I don't know if you've done this in your past, but I think, I kind of think it's like breaking up with a doctor or breaking up with a therapist. You don't have to give a very long and detailed answer.

explanation. This is your money. You are the client. And it's okay to just say, I've decided to make a change. Thank you so much for all you've done for me over the past X number of years. I wish you all the best. You don't have to say any more than that. If you feel like they've done something wrong and you want to give them some more insight, that's okay.

But you've been paying this person. You owe them no more than that. Pam? I feel so strongly about this. And you took the words right. We are so in agreement on this. This is not a boyfriend. This is a professional relationship. You've been paying this person. So I have this come up a lot when people come to me for the very first time and they'll say, well, Pam, how do I break up with my broker? And they're upset about it. And I say to them,

Yeah, I can understand that because, you know, you've known this person for a long time and you feel like there might be pushback. I say the following. There are things in my life that have recently changed. Circumstances out of my control. And I'm going in a different direction with my finances. This is very personal to me. And I don't want to share the details. I hope you can respect that. And by doing that, which is exactly what you just said, Jean,

It kind of creates a situation where it's already darn hard for somebody to come back and probe or argue back to that because you've just said, I hope you can respect that. Yeah, I think you actually said it better. That's the key. I hope you can respect that. I'm going to steal those words and I'm going to use them if I ever come into this situation again.

Our last question, actually, Pam, is very specific to WealthRamp. We got a question from Dawn, and she'd like to know what percentage of WealthRamp planners are people of color? And more importantly, is there a way for her to specifically select among these planners? Also, is it possible to find an advisor who's specialized in wealth?

In FIRE, that's the Financial Independence Retire Early movement. She says, I follow a few FI groups and a topic many people are interested in is ensuring that their calculations are correct near their retire early date. But it seems difficult to find advisors who are well-versed in FIRE. All right. So this is one of the most important questions.

for the whole industry, for this entire industry that we're in, meaning financial services, meaning specifically in wealth management. And we have to face this. Now, do you know how many people of color make up the total population in the United States? It's roughly about 12%. Do you know how many are investment advisors?

less than 2%. Think about that. It's way underrepresented. Women also make up more than, just to give you a sense of this industry, women make up more than half the population, yet women are only 15% of the wealth management business. We have to change this. Now, on WealthRamp, about 30% of our advisors are female, but still only about 2%.

are people of color. This is not good enough for me. I am determined to continue to seek out and build relationships with fiduciary advisors of color and continue mentoring and building bridges between younger people who want to get into this business and they don't really know how exactly to access the fiduciary side of this business. It's a big deal to me.

So basically, it's underrepresented across the board. Yes, we do have advisors of color. And no, that's not one of the match points specifically. But in terms of the FIRE movement, advisors do specialize in clients who are younger and they're FIRE-focused.

So we have several advisors, for example, that I can think of right off the top of my head who have clients who want to retire when they're 48 years old or 45 years old, and they want to start a whole new life of adventure and education, travel. So they're saving like crazy. They're investing aggressively and smartly, and they're looking for advisors who understand that. So the answer is yes.

There are advisors who specialize in that type of client. It doesn't mean that's the only client they have, but they work with clients who have that ambition to help them get on track and

and build their well with that in mind, with a fire exit in mind, if you will. Pam, thank you for the answer and thank you for the candor and for working hard to change a situation that we all know needs changing. Dawn, I want to point you to the Association of African American Financial Advisors. It's been in existence for 20 years. They have a financial advisor locator tool. I'm not sure exactly

what criteria they are using when they list financial advisors. But as of listening to this podcast, you are now armed with a whole list of good questions to ask. So I'm sure that you'll be able to do the vetting yourself. Pam, thank you so much for joining me today. Thanks for a great conversation. Thanks for answering all of these questions. Thanks for having me. I love it. Thank you. Absolutely.

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