HerMoney Classic Mailbag: Financial Advisors 101 — Detailed Summary

HerMoney with Jean Chatzky delves into the intricate world of financial advisors in this engaging episode titled "HerMoney Classic Mailbag: Financial Advisors 101," released on January 3, 2025. Host Jean Chatzky teams up with Pam Krueger, Founder and CEO of WealthRamp, to address listeners' pressing questions about finding, evaluating, and managing relationships with financial advisors. This comprehensive discussion offers invaluable insights for women navigating the unique financial challenges they face.

1. Introduction

Jean Chatzky opens the episode by highlighting the recurring theme of financial advisor inquiries from her audience. She reintroduces Pam Krueger, a trusted expert in the field, emphasizing her extensive background and commitment to guiding women toward financial security.

Jean Chatzky [01:02]:
"The topic that continues to come up time and time 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."

2. Choosing the Right Financial Advisor

a. What Advisors Can and Can’t Do (Carrie's Question)

Carrie inquires about the scope of services financial advisors can provide, specifically questioning their knowledge in tax law.

Carrie [02:26]:
"What can and can't an advisor help me with? For example, how knowledgeable should they be in tax law for financial planning?"

Pam emphasizes the importance of advisors possessing fundamental financial knowledge and avoiding basic mistakes, such as improper Roth IRA investments.

Pam Krueger [03:02]:
"Even when they don't specialize in tax planning per se, they ought to not be making a mistake like that with a Roth IRA. That's pretty basic."

b. How to Assess an Advisor’s Qualifications

Pam outlines critical questions to evaluate a financial advisor's qualifications:

1. Fiduciary Status:
   Pam [03:02]:
   "Are you 100% fiduciary, held to the fiduciary standard all of the time?"
   Advisors should legally commit to acting in the client's best interest.

2. Experience and Establishment:
   Pam [03:02]:
   "How long have you been established as a fiduciary advisor?"

3. Client Base and Specialization:
   Pam [03:02]:
   "Who are your typical clients? Do you have a specialization?"

4. Credentials:
   Pam [03:02]:
   "What credentials do you have?"
   Look for certifications like CFP, CPA, or CFA.

5. Client Load and Retention:
   Pam [03:02]:
   "How many clients do you have?"
   Pam [03:02]:
   "What is your client retention rate?"

c. Specified Specializations and Why They Matter

Understanding an advisor's specialization ensures alignment with specific financial needs.

Pam Krueger [05:50]:
"If you have a child on the autism spectrum, you might need to save for a third retirement. I'd rather have an advisor experienced with special needs trusts."
Pam [06:11]:
"Sometimes we don't even realize that we have specific needs until we start to dig in."

3. Financial Planners and Tax Planning (Ann's Question)

Ann seeks clarity on whether a financial planner can also handle tax planning or if a separate professional is necessary.

Ann [07:14]:
"How do you find a financial planner who can also help with tax planning?"

Jean shares her experience with advisors who collaborate with accountants, highlighting the rarity but possibility of finding advisors with dual qualifications.

Jean Chatzky [09:04]:
"There was one financial advisor who was also a lawyer and a CPA. That was just like, whoa, trifecta."

Pam Krueger [09:04]:
"It's like the left hand needs to know what the right hand is doing. Tax planning is a big part of financial life."

Pam [10:32]:
"There are different kinds of tax professionals. You might need an enrolled agent or a specialist instead of a CPA."
Pam [11:28]:
"CFPs are sometimes trained in tax planning as well."

4. Minimum Net Worth Requirements for Advisors (Tara's Question)

Tara wonders if financial advisors enforce minimum net worth thresholds, potentially excluding younger individuals.

Tara [11:44]:
"Do advisors have minimums, like $750,000? What options exist for those just starting out?"

Pam confirms that while some advisors do have high minimums, many firms like WealthRamp offer services with low or no minimums.

Pam Krueger [12:28]:
"Some advisors have minimums starting at $50,000 or even zero. WealthRamp has planners who charge reasonable fees to help you get on track."

Pam [14:18]:
"There are people willing to help regardless of your asset level. Don't be stopped by high minimums."

5. Frequency of Meetings with Financial Planners (Suzanne's Question)

Suzanne seeks guidance on how often to meet with her financial planner in the absence of major life events.

Suzanne [15:27]:
"How often should I meet with my financial planner if there are no major life events?"

Pam recommends a flexible approach based on individual needs, typically involving annual or bi-annual meetings with additional touchpoints as necessary.

Pam Krueger [16:41]:
"Financial planning is dynamic, not static. You might meet once or twice a year in person and have quarterly touches via calls or updates."

Pam [18:19]:
"Feel free to communicate as often as needed, especially during significant changes in your life."

6. Changing Financial Advisors Gracefully (Mary's Question)

Mary asks for advice on how to terminate a relationship with a financial advisor or CPA gracefully.

Mary [18:19]:
"What's the best way to kindly and gracefully break up with your financial advisor?"

Pam advises treating the relationship professionally, similar to ending a relationship with a doctor or therapist, without unnecessary detail.

Pam Krueger [19:41]:
"You can say, 'I've decided to make a change. Thank you for all you've done. I wish you all the best.' You don't owe them more than that."

Pam [20:45]:
"Use phrases like, 'There are circumstances out of my control, and I'm going in a different direction with my finances. I hope you can respect that.'"

7. Diversity in Financial Advisors and Specializations in FIRE Movement (Dawn's Question)

Dawn raises concerns about the representation of people of color among WealthRamp planners and the availability of advisors specialized in the FIRE (Financial Independence, Retire Early) movement.

Dawn [20:45]:
"What percentage of WealthRamp planners are people of color? Can I select advisors based on this? Also, are there advisors specialized in FIRE?"

Pam acknowledges the significant underrepresentation of people of color and women in the financial advisory industry and shares WealthRamp's current demographics.

Pam Krueger [21:39]:
"Women make up about 30% of our advisors at WealthRamp, but only about 2% are people of color. This is not good enough, and we're committed to improving."

Regarding the FIRE movement, Pam confirms that WealthRamp has advisors who specialize in helping clients achieve early retirement.

Pam [21:39]:
"We have several advisors who work with clients aiming to retire by 45 or 48, focusing on aggressive and smart investing strategies to support their FIRE goals."

Pam [23:56]:
"Advisors specialized in FIRE understand the unique calculations and planning required for early retirement, ensuring clients' strategies are sound."

Jean then points Dawn towards additional resources to find advisors of color, such as the Association of African American Financial Advisors.

8. Conclusion

Jean wraps up the episode by thanking Pam for her candid responses and ongoing efforts to enhance diversity within the financial advisory sector. She encourages listeners to utilize the insights shared to make informed decisions about their financial planning needs.

Jean Chatzky [24:44]:
"Thanks so much for joining me today on HerMoney. If you love this episode, please give us a five-star review. Join our programs Finance Fix and Investing Fix to continue building your financial confidence and power."

Key Takeaways

• Fiduciary Standards: Always ensure your financial advisor is a fiduciary committed to acting in your best interest.

• Specialization Matters: Choose advisors who specialize in areas relevant to your unique financial situation, whether it's tax planning, special needs trusts, or the FIRE movement.

• Accessibility: Many advisors, especially through platforms like WealthRamp, cater to clients with varying asset levels, ensuring financial planning is accessible to all.

• Communication: Establish a communication frequency that suits your needs, maintaining flexibility to adjust as your financial situation evolves.

• Diversity: While the financial advisory industry lacks diversity, platforms like WealthRamp are striving to improve representation and inclusivity.

• Graceful Transitions: Ending a relationship with a financial advisor can be handled professionally without unnecessary confrontation or explanation.

This episode serves as a crucial guide for women seeking to navigate the complexities of financial advising, offering practical advice and encouraging proactive financial management.