A Certified Financial Planner® —and daughter of Charles Schwab—Carrie Schwab-Pomerantz has made it her life’s mission to increase Americans’ financial literacy. She believes it is essential to improving their financial security. Despite being a financial expert herself, Schwab-Pomerantz works with an independent financial advisor* to help her manage her own personal wealth, a decision that has given her peace of mind about her finances.
We spoke to Schwab-Pomerantz about her decision, the essential questions investors should ask advisor candidates, and why, when it comes to money, even successful investors can benefit from financial advice.
You obviously have a deep understanding of your finances and investments, and yet you work with an independent advisor. Why?
Schwab-Pomerantz: One thing I’ve learned is that just because you’re a financial expert, that doesn’t mean you always have the time to give your own finances the attention they need. I had always been an equities person and enjoyed managing my own investments, placing my own trades. But life began to get more complex.
As I entered my 40s, keeping up with my own finances became harder. I was very busy with my career, trying to balance raising three small children with regular business trips around the country. On top of that, the financial world was getting more complicated, and I knew that I didn’t have the time to properly evaluate all of my investment options.
This realization led me to seek out an advisor. I wanted support from someone who was going to operate with the highest standard of care and could take the time to focus on my finances in ways I couldn’t. For me, investing is all about achieving your life’s goals, and I wanted to find an advisor who would understand and care about my family’s financial future as much as I did. I wanted someone I could work with over the long-term who shared that same philosophy.
While Schwab offers a range of great solutions and services for investors, the complex nature of my financial situation and my desire for a highly personalized, comprehensive approach led me to seek out an independent advisor. The best part is that many independent advisors, including mine, work with Schwab to custody their clients’ assets. So I gained the high-touch, customized services of an independent advisor while maintaining all of my accounts at Schwab, which was very important to me.
Schwab-Pomerantz: It was a revelation. Even though I understood finance, I benefited from a second set of eyes on my investments and getting that objective point-of-view.
For example, while I put a lot of time and energy into building my portfolio, I wasn’t spending enough time rebalancing. I was taking on more risk by being over-concentrated in company stock, and getting to an age when I needed to think more deeply about my asset allocation. My advisor helped me find new ways to reduce that risk and maintain exposure to other asset classes, such as cash and bonds.
Having a trusted advisor has increased my confidence; it allows me to trade ideas and learn from an expert, and offers a check on impulsive decision-making.
Schwab-Pomerantz: There are many. A big one is that independent financial advisors agree to always operate in a fiduciary capacity, which means they must put your financial interests ahead of their own. This is the highest regulatory standard for financial professionals.
Another is their fee structure. Most independent advisors charge fees based on the assets they manage for you, which helps keep things transparent and easy to follow.
For me, the relationship was also a big draw. Working with an independent financial advisor is like having a personal trainer. Any of us can go to the gym, but a trainer is going to really get to know you, develop a personalized plan, and give you some external accountability. In the same way, an advisor is going to keep you focused on your long-term goals, and makes sure you’re staying engaged with your finances on a regular basis. Even a quarterly appointment forces you to assess your portfolio against your goals and risk tolerance – which is so important since our lives and needs can change on a dime.
Another draw was having somebody that could offer some emotional support during the ups and downs of the market. For example, during the Great Recession, when a lot of people were pulling out their money and locking in their losses, I didn’t do anything. I held, just like I always advise in my “Ask Carrie” columns. That was a really trying time for everyone, and I think having a trusted financial advisor – one who could provide more context and perspective – would have made a big difference for a lot of people.
Schwab-Pomerantz: A good place to start is making sure the firm has the services you need. Different firms offer their own unique combination of services, so make sure they offer what you’re looking for. Beyond financial planning, some firms can provide tax planning, estate planning, and referrals for legal advice. Also, find out if they have experience working with people whose needs, situation and goals are similar to yours.
There’s a lot of talk about all the different ways financial advisors get compensated. Why does that matter?
Schwab-Pomerantz: Every conversation with a potential advisor should start with the essential questions about compensation. How do you earn money? What are your fees? Do you receive any commissions on specific investment products? This is one way to better understand any potential conflicts of interest. Fortunately, because independent advisors are held to the fiduciary standard, and most are fee-based, you know that you can trust that your interests come first. But I still advocate for making sure you get clear answers to these key questions early on.
Schwab-Pomerantz: One thing I think people often miss is to ask about a firm’s investment philosophy. For example, I strongly prefer tax-advantaged investing, so I’m more interested in indexing than I am in finding the latest hot stock. Making sure your advisory firm has an investment philosophy that is aligned with your own is critical. If the individual that you are working with were to leave the firm, you want to know their successor will approach your finances in a similar way.
Schwab-Pomerantz: The fundamental question is always “Do I want to collaborate or do I want to delegate?” Some people want an advisor to handle their financial decisions for them, while others want to execute decisions themselves and just need guidance. Your decision here can change over time. When I started working with an advisor, I still wanted to place trades myself, but over time I loosened my grip as I grew more comfortable and confident in the relationship.
Schwab-Pomerantz: Extremely important. Great advisor relationships are built on trust and mutual respect. If you’re not comfortable with an advisor, or if you’re afraid to ask them questions, you’re not going to get the kind of advice that will drive results. Your advisor should be patient, capable of teaching you, and communicate as you prefer─whether that’s via frequent texts, or in face-to-face meetings. Most importantly, they should listen.
But personal likability is only one factor. Do your homework on their credentials, experience, and their record too.
So what would you say to someone who is interested in finding an independent investment advisor but doesn’t know where to start?
Schwab-Pomerantz: I understand that feeling. For me, knowing I needed help was one thing, but learning where to start was another. The first step, I think, is to spend time thinking deeply about your goals. What are your financial needs today and years in the future? What do you want for your family? Before an advisor can help you get to your destination, you first have to figure out what that destination is.
Visit FindYourIndependentAdvisor.com, to search for an independent financial advisor in your area.
*For this article, the term “independent financial advisor” refers to a Registered Investment Advisor (RIA)