What is Comprehensive Financial Advice?

Choosing a Financial Advisor is hard, and choosing the right one is even harder. As you begin your search for an advisor, you often end up with more questions than answers - 

• What’s the difference between a Financial Advisor and a Financial Planner?
• What is a fiduciary? Is that important?
• I keep seeing the phrase “comprehensive financial advice”, what does that even mean?

While all of these questions are important to answer, in this post I’ll explain what comprehensive financial advice is, why it’s important, and how to ensure that your financial advisor is delivering it. 

What is Comprehensive Financial Advice?

Comprehensive financial advice is best described as an informed approach to financial planning that ensures coordination across all areas of your financial life. In short, it is ensuring that all the pieces of your financial life “talk” to each other. An example of this would be making sure that your investment strategy takes into account your personal income tax situation and possibly even your estate planning goals. Let’s walk through this with an example:

Nicole is a 37 years old single pediatrician working for a state hospital system making a $225,000 salary. She’s getting serious about saving for retirement and wants to make sure that she is optimizing her savings strategy. She currently saves into a tax deferred 403b, but wonders if that is the best idea. After meeting with her and understanding her entire financial situation, her new financial advisor notices that she isn’t saving into the optional 457 retirement plan. Her advisor recommends that she begin maximizing her pre-tax contributions to this plan as well, but suggests that she switch her 403b contributions to the Roth 403b option.

The advisor makes this suggestion because of where Nicole’s income falls relative to Federal marginal tax rates. By optimizing Nicole’s contributions across Roth and pre-tax accounts, the advisor is able to help Nicole defer taxes at the higher, 32% marginal tax rate and pay taxes now on dollars that fall into the lower, 24% marginal tax bracket. The money that she saves into the Roth account will grow tax-free for retirement.

Had Nicole’s advisor not taken the time to review her tax return and understand her unique situation, she would miss out on, potentially, hundreds of thousands of dollars in tax savings across the rest of her life. This is just one, very simple example of the type of result an advisor who takes a comprehensive approach to financial planning can deliver for clients.

How to Ensure Your Advisor Provides Comprehensive Financial Advice

Now that you have an idea of what “comprehensive” financial planning looks like, how can you ensure that the advisor you work with will deliver it? 

The Limitations of “Big Box” Firms

First and foremost, if your advisor works at a “big box” firm, there is an almost 100% chance that you will not get this type of advice from them. This isn't necessarily because they don't want to provide it, but because they are either not allowed to provide it or they do not have the necessary knowledge. Big Wall Street firms have deemed it “too risky” to provide this type of advice. 

Advisors who provide comprehensive advice at an advanced level must spend a lot of time obtaining and maintaining knowledge in the areas of tax, investments, insurance, estate planning, employee benefits, and more. In addition to learning all the nuances of those separate areas, they must then take the step of learning how to best integrate their thinking across these disciplines. 

The “big box” firms have decided that this is too much to monitor across their advisor network and have decided the best course of action is to not permit their advisors to give this type of advice. This comes at the detriment of the average client who works with one of these firms and likely isn't getting the best advice possible for their situation.

What to Look For in an Advisor

If you want truly comprehensive financial advice, you will first need to look for an independent advisor who is a full time fiduciary. This means that they are not held to the same strict rules as the “big box” firms and, being a fiduciary, they are legally obligated to always act in your best interest. 

You should also aim to work with a Certified Financial Planner. While this is no guarantee of a better experience, it does guarantee that you are working with someone with a higher level of education and experience. CFPs must meet education and experience requirements including the completion of an extensive exam that tests their knowledge across a range of subjects including tax, investments, estate planning, insurance, and more. 

Coordinating with Other Professionals

A good comprehensive financial planner will also be willing to, and likely encourage, coordination with the other financial professionals in your life. They will be happy to meet annually with your tax professional and coordinate with your attorney. Finally, if the advisor you are working with doesn't ask for a copy of your most recent tax return on an annual basis, you are not getting comprehensive advice.

The type of advice detailed above is not only what Blackwater Financial delivers every day, but is the reason we exist. After being continually disappointed by the lack of quality financial advice being offered to busy professionals, I knew that I had to create something better. Although Nicole’s situation is just an example, it represents a real world scenario that I encounter on a regular basis. Real financial advisors take the approach that I have described in this post. 

Next Steps if Your Advisor is Falling Short

If after reading this, you feel like your current advisor is coming up short, you need to seek a second opinion. Whether that be with me (you can book a consultation here) or another comprehensive planner (I suggest checking out XY Planning Network or NAPFA). You’ve worked too hard to get to this point and build a great life. Don’t let a sub-par advisor waste your time and money with bad advice.