Pros & Cons of working with a newer financial advisor

Sean gives you the ups and downs of hiring a less-experienced financial advisor. 

Transcript

Sean 0:00

Hey, it's Sean with How to Find a Financial Advisor. In today's video, I'm going to talk a little bit about the pros and the cons of working with an advisor who's fairly new to the profession. And for the purposes of new, we're just going to say five years or less as an advisor working with clients directly. So it's a somewhat arbitrary line because an advisor with five years versus six years of experience, not much different. Whereas someone with four and a half years versus six months might be a big difference. But we're just going to say within the first five years, these kinds of factors are more likely to apply. So, first, what are the big benefits of working with a newer advisor? First, kind of the most obvious, they're probably going to be very anxious and eager to serve you well, have a lot of bandwidth time, not be bogged down with a bunch of other existing clients they have to take care of. And because the relationship with you is going to be fairly new, they're very likely to give you a lot of attention and be hopefully proactive in problem solving, very reactive, because I know from my first five years in the profession, for example, those people that I've worked with all this time, that's a special kind of bond and a special relationship for me because just the tenure of the relationship, the fact that they put their trust and confidence in me early in my career means a lot to me, probably more than they'll ever know. So you can be sort of special if you are working with someone that's trying to build a business or build their career. Um great amount of attention. Also, they're going to be more likely to be current on the newest regulations, uh, techniques, kind of the benefits of being new or young at something is you're not stuck in the old way of doing things, right? So that's the flip side to experience you are probably gonna know or be more likely to know what's the best practice for the current day. Whereas if someone's been doing something for 45 years and they're probably a little bit older and they may or may not be as eager to learn uh evolving best practices. So, what are the flip side of that, the downsides? Well, um one of the more hard to notice things would be the incentives behind the scenes that you may or may not see or feel that an advisor has, because uh depending on the framework, if you but if there's a lot of um newer advisors are going to work at firms that have um a sliding scale of pay or different incentives that encourage them to build the business early on, and if they're not able to do that, sometimes they are not going to be able to stay where they are. So uh I started at Edward Jones um 22 years ago, and very much a sales business development focus. There was not a ton of direct professional uh planning education, I think that's changed over the years, but um the number one thing you had to do was bring in new clients, right? And so uh there's nothing wrong with that because it gives an incentive to be hungry to work with and help people, but some of the incentive uh pay is based on bringing in new money, investing new money, sometimes moving money around. If it's a transaction-based relationship, that's less of an issue with these days with more fee-based or advisory-based compensation. But one way or another, a newer advisor is more likely to have pressures or considerations they have to think about that an experienced, established advisor doesn't have. So maybe if you're you know three or four years in and your firm has a base salary while you're building your client base, but if and there's several firms where the salary declines as you get tenure, and therefore you hit this, you can hit this uh inflection point where you may be growing your business, but your income is going down because the the subsidy or income, base salary from your employer is going away. And of course, that can be stressful. Anyone that's had their income go down or lost a job, you know what that's like. Um and for a new advisor, I went through this and I was only at Edward Jones for three years, partially because I was concerned about the kind of the treadmill of always having to be either moving client money around or bringing in new clients or bringing in new money from the clients I had. And doing that for the rest of my career did not sound appealing. And there was an incentive uh offered from a bigger company, Morgan Stanley, to let me move, and I would I wouldn't have to do that anymore. I could change to more of a a uh level uh based on the assets I managed compensation model, which is not perfect, but it was it felt less stressful and allowed me to focus on doing the best work for clients versus always having to look for money to move around because of the commission-based compensation that the firm had at that time. So, but the main point here is you're not gonna see necessarily directly those incentives, the declining salary or the bonuses for certain activity, or um, you know, all these little wrinkles of how your advisor is compensated, uh, even if it doesn't affect you directly, on the backside, it could affect you. So, you know, how would you get into this kind of thing? Well, if you're a natural question to either ask or find out is how long has as a potential advisor been in the profession, how long they've been at their specific firm. Um, you could ask what you know what made you choose this firm. Um very open-ended, either either if they've spent their whole career there, or if they've changed fairly early on, that's good to know as well. Um because the there's just higher chances that if you work with someone who's newer, they may not be in the same place, you know, two, three, five years later, uh, which might be fine. I feel like it's worked out for my clients that started with me at Edward Jones, moved with me to Morgan Stanley, and have still been working with me as an independent advisor for almost 15 years now. Um, but you know, that was an inconvenience for them, probably. So I'm again I'm uh grateful and honored that they have chosen to move with me, those people that did that. But um, you know, you want to think about that. It doesn't mean you shouldn't um I wouldn't exclude newer advisors, especially if you have a personal connection or if you're referred to some referred by someone that has worked with that advisor and has trust and confidence in them. But just be aware if it's a newer professional, um, you want to think through what does that mean to you? So don't be afraid to ask the kind of potentially awkward questions of you know, what's your how do you get paid by the company? Um, is there anything keeping you here, or what would make you change, or what why did you choose this firm in the first place? So those are some high-level pros and cons or considerations when working with a newer advisor. If you have questions about working with a financial advisor, looking to change advisors, looking to work with someone for the advisor for the first time. I love talking shop about this stuff. That's why I started the channel. So I'm happy to help. Um, just uh make you can comment below. Welcome to email me at kernan at hey.com. That's k e r n a n at h e y dot com. Call me 469 893 0067. Happy to help. Thanks, and we'll see you in the next video.