Author – Joe Turkal, LtCol (Ret) USMC
So, you are a military veteran (or active duty) and you have determined that it may be time to seek out a professional to assist with your financial goals. Congratulations on achieving a strong financial position and having the recognition that a good financial advisor can/should add about 3% of value (not every year but overall) to your investments, but more importantly can relieve you of the uncertainty and stress that comes with managing your finances. Now, how should a veteran find a financial advisor that he/she can trust to manage one’s life savings and provide trusted advice around all financial decisions including portfolio management, tax planning, goal funding, risk mitigation, estate planning, and other financial matters? After all a Google search for “financial advisors near me” is not a good method. This article is not about search engines or even referrals from family members or trusted friends, it will focus on how to evaluate a financial advisor when you are considering hiring one.
Since this article is focused on military veterans let me start with the time-honored technique of providing the Bottom Line Up Front (BLUF). I recommend all military service members and military veterans choose an advisor from Registered Investment Advisor (RIA) Firm, that is Fee-only. Most importantly, choose an advisor that after meetings and dialog and experience you find one that is trustworthy and that respects and shares your values.
Why? First let’s address fee-only verses fee-based and why I recommend fee-only. You may search for the source of these two terms but will be hard pressed to find a definitive source reference document. Even federal law and federal regulation will not use these terms, and yet they are widely accepted to describe to distinct ways an advisor is compensated. Fee-only refers to an advisor whose only compensation comes from a fee paid by the client. Fee-based refers to an advisor who receives compensation though fees and commissions on sales of certain financial or insurance products. I want to be clear here with my advice — ask your perspective financial advisor if he/she is fee-only or fee-based. If the advisor does not give a straightforward answer to your question, ask the advisor if he/she receives any compensation from commissions on any products (in fact just ask this as a follow up). If the answer is yes, the advisor is fee-based or commissioned only. If the answer is no, then your perspective advisor is fee-only.
With a fee-only RIA firm, the standard is clear, which is they must uphold a fiduciary standard for all clients. Upholding a fiduciary standard means he/she only works in the best interest of his/her clients, never placing personal interests over the clients’ interests. In fact, he/she could face disciplinary action or loss of license by not doing so. Fee-based is a term that describes a firm or advisor that may receive compensation via commission or other forms of compensation for sales of specific financial or insurance products. These firms which are usually registered as broker-dealers must meet a standard known as best interest. This sounds very similar to a fiduciary standard and frankly should be synonymous, but in practice the term and its application can be interpreted in many different ways allowing inconsistent application, so long as it is adequately justified. The technical and legal details are beyond the scope of this article; however, the message I am delivering is that a financial advisor who works for a fee-based firm benefits from the sale of specific financial and insurance products.
If you choose to take my advice on limiting your options to only those financial advisors in fee-only firms, you are by no means guaranteed a good, ethical, and competent advisor. This is why the most important step is to meet with any perspective financial advisor and through your interaction gain an acceptable level of trust in the advisor’s knowledge, skills, and ethics. The process would look different for different people, but my suggestion is to find an advisor, who is willing to spend the amount of time and who demonstrates a level of transparency to you (and your spouse) to gain your trust. Here are some things to think about.
-Was the advisor clear and transparent on how he/she receives compensation?
-Was the advisor clear on whether he/she is held to a fiduciary standard?
-Did the advisor demonstrate the level of competence you would expect?
-Did the advisor spend considerable time getting to understand you and your
family’s current situation and your goals?
-Did the advisor take the time to explain his/her investment and financial planning
strategy and philosophy, meeting cadence, and availability?
-Was there a connection and comfort level, meaning did you enjoy the meeting(s)?
– Are you satisfied with his/her with openness and transparency?
My last piece of advice as you seek out a professional to assist you and your family in reaching your financial goals is to seek out an advisor who understands the military culture and military values. But, more importantly, he/she has experience with the financial profile of military members and veterans. Why is this so important? Military members and military veterans (especially retired military veterans) have a much different financial and benefit situation than a civilian counterpart. If you encounter a financial advisor who has no experience with, for example, entitlements and benefits such as basic allowance for housing (BAH) and basic allowance for subsistence (BAS), Tricare medical coverage, Thrift Savings Plan (TSP), military pensions, veterans’ benefits, etc., then it is very difficult to provide holistic and valuable financial advice. In fact, you may find yourself educating your advisor on these areas. So, in addition to the questions above, you should query your perspective financial advisor as to his/her experience with military and veteran benefits. Maybe even test his/her knowledge with a few specific questions like, can you help me to evaluate if the Survivor Benefit Plan (SBP) is a good choice for my spouse, or are you familiar with the military blended retirement system?
In summary, this article is not about finding a good search engine to find your ideal financial advisor. Instead, the focus has been on how to evaluate whether a perspective financial advisor is a good fit for you as a military veteran. The evaluation is quite different than it is for most civilians, because military members and military veterans are a small percentage of the U.S. population and have a very unique culture and financial profile along with very high standards for competency and integrity. As such, my advice for military veterans is to choose an advisor from Registered Investment Advisor (RIA) Firm, that is Fee-only. Most importantly, choose an advisor that after meetings and dialog and experience you find trustworthy and that respects and shares your values.
Joe Turkal is a retired Lieutenant Colonel, who spent 30 years in Marine Corps Aviation, who, following retirement, spent a year as a registered representative and contracted financial advisor with a large insurance and wealth management company. He has since co-founded a Registered Investment Advisor (RIA) firm with his son Spencer.
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