Choosing a financial advisor

Whether you have already filed your taxes or are preparing to file, taxes, finances and overall financial health are always on our mind.

While some people will make most of their financial decisions on their own, once they start accumulating more than they need for the simple necessities, many will seek out financial advice from professional financial advisors, choosing between an independent advisor, one who works at a financial institution or one who works at a major brokerage house. Some may even opt for the so-called robo-advisors that are starting to become part of the financial analysis mix.

“The differences among investment firms usually are minor because expertise can be found at any size firm,” says Jon Lyons, financial advisor and partner in Lyons & Bolek, LLC, in Portage. “But each client needs to use their own criteria to select an appropriate advisor. The biggest differences among advisors come in these two areas: the relationship with the client, and the firm’s sales culture that effects that relationship.

Lyons has worked at big name firms, at bank brokerages of various sizes, and independently for the last 16 years in Northwest Indiana.

“All had their virtues, and each had its share of unique advisors,” Lyons says. “Additionally, I have met many reps from other firms at seminars and educational events over the years. In my experience, most reps are pretty intelligent, generally honest and usually have the interests of their clients at heart.”

Tim Coleman, senior vice president and director of Centier Financial Partners in Merrillville, says that it’s critical to do business with an organization with a long-standing reputation. Centier, formerly the First Bank of Whiting, has been a recognized financial leader in Northwest Indiana for 120 years. Centier Financial Partners is a division of the bank, which works well for people who want to handle all of their financial needs with a single entity, rather than going to a bank or credit union for some financial products and a financial planner/advisor for other monetary needs.

“Banks are insured and well-regulated; we have a team of experienced, credentialed experts, Coleman added. Another advantage of working with the financial planning/trust division of a bank is that a consumer has one stop for loans for autos, mortgage and business as well as a full line of deposit products such as checking and savings, along with treasury management options.

According to Lyons, most representatives or planners start out as generalists. They study extensively to pass licensing tests (such as the series 7 general securities representative exam). They stay up to date through their own study, as well as through required continuing education classes, firm element training, annual compliance meetings, and periodic FINRA review exams.

Some will eventually work themselves up to a Certified Financial Planner (CFP) designation. CFPs, like certified professionals in other professions, have passed specific exams and have ongoing education requirements to keep their designation.

Michael R. Kopech, financial advisor for the Michigan City office of Edward Jones, expects to complete his CFP training later in 2018. Unlike other “name” brokerage houses like Merrill Lynch, Edward Jones does not sell products of its own.

Kopech, followed in his family’s financial footsteps by joining the company. His parents had invested through the firm’s Homewood, Ill., office for many years. He was recruited to the company by his parents’ financial advisor.

If he had not gone that route, he says he probably would have been a career high school teacher.

The Edward Jones advisors tend to be very involved in their communities and develop personal relationships with their clients, according to Kopech, “you will see them at graduations and at funerals.” Financial plans might as easily be developed at a client’s kitchen table as in the advisor’s office.

“I’ve gone door to door; I want to be known in the community,” Kopech says.

The company is adding advisors throughout the country, many recruited the same way Kopech was, he adds. “Our company is owned by the employees, so the company wants to see people succeed and grow and do the right thing.”

Some of the larger brokerages require that advisors produce a minimum amount of business to keep their jobs. An employee-owner or independent doesn’t have a corporate-imposed floor.

An advantage of working for a company like Edward Jones (and for clients of the company) is that there are several checks and balances, Kopech says. “No one can know everything. Everything I do is checked by the corporate office in St. Louis.”

Large brokerage houses often cite their research capabilities and overall financial strength – as well as some proprietary products – as why they are the best choices for consumers.

Kopech adds that he and others who work for the firms strive to build long-term, deep relationships with their clients, that’s why there are several Jones offices in Northwest Indiana (five in Crown Point alone).

“You can’t have hundreds of clients, you have to be able to build personalized plans for folks,” Kopech says. “Our culture is non-competitive. Everyone has to build his or her own business with boots on the ground – there are so many people that need financial help.”

“Most reps (at all firms) carve out a niche for themselves in specific areas over time,” Lyons adds. “If they need an expert, they usually know local attorneys and accountants, and have access to experts through their broker dealer (brokerage firm), suppliers (such as mutual fund and insurance companies), and clearing firms (that process trades and statements).

The differences, according to Lyons: There are some areas where they might differ, but remember, they are all sales organizations, and the reps are sales people, paid via fees or commission.

“The training at these firms is very similar,” Lyons adds. “Ethics and expertise will generally be about the same across organizations. The main differences are in their business models, and in the approaches of their individual representatives.”

Most consumers are looking for financial advisors who provide service consistent with recent Department of Labor legislation, that states that financial services brokers must act in a client’s best interest – basically, brokers/advisors couldn’t sell higher commissioned products unless they were truly in the client’s best interest. Some major brokerage houses were accused of doing that in the past.

In November, enactment of the final rule was delayed until 2019. Yet Lyons and Coleman say that most Northwest Indiana residents will find most financial advisors already abide by this philosophy in conducting their business.

That’s why a financial advisor might recommend a portfolio of conservative investments for one family, but will advise slightly more aggressive (and therefore, typically riskier) investments for another client.

Even a pair of clients with seemingly identical financial situations will often get different advice because the clients have different life goals.

Examining in detail a person’s financial status and life goals is what sets human financial planners apart from so-called “robo-advisors.”

Like the name indicates, the robo-advisors are nothing more that automated systems that will compute a financial plan and suggested investments based on a person’s answer to a series of questions. Any commissions or fees will tend to be less than with human financial advisors.

While human planners will use software programs to help with analysis, they still tend to dig deeper into a client’s financial goals, as explained in the book Exploring Advice, written by more than 30 financial planners.

While a robo-advisor and human one might both ask a person’s retirement goals, for example, the robo-advisor might settle for a simple answer like “travel;” the human advisor will dig deeper into the answer. Similarly, “college for children” might be an answer for a robo-advisor, a human advisor will ask questions, like “community college, state college or private college.” Those deeper questions and answers will lead to a more personalized financial plan.

“It’s important to note the distinction between a firm and an advisor,” Lyons adds. “Selecting a rep by their firm is like judging a book by its cover. Advisors tend to operate somewhat independently (while complying with the procedures of their firm), and there are often radical differences among advisors. Sometimes advisors, regardless of the firm they are with, specialize in working with certain types of clients (such as retirees, or local business owners), or particular types of products or services.”

At the end of the day, every client wants an advisor whom they like and trust,” Lyons points out. If the client connects with that advisor, and they feel comfortable working together, less importance will be placed on the type of firm involved.

Lyons advises that clients considering a new advisor ask themselves:

Is the rep trustworthy and reliable? Are they accessible when you need to reach them? Do they work with you to customize a plan based on your needs, rather than a cookie cutter approach? Are they knowledgeable? Do they communicate and explain their investments well? Do they listen to and address your concerns? Do they even care if you make or lose money? These and other topics are more important than what firm they work for.

Consumers can check the regulatory history of each representative at www.finra.org.

So any consumer questioning how to handle his or her finances have several options to choose from, and can see which financial planning option fits his or her own comfort level.

Click to read more from the Apr-May 2018 issue of Northwest Indiana Business Magazine.