5 Things To Look For When Hiring a Financial Planner or Financial Adviser, with Lou Melone and Tyler Gallagher
Find out the credentials of the person to which you are speaking. Are the credentials a fit for what you’re looking to get help? Are those credential “internally generated” by their own firm or an outside board who oversees it?
As part of our series about what one should look for when hiring a financial planner or adviser, I had the pleasure of interviewing Lou Melone, Managing Partner at Budd, Melone and Company. As a board CERTIFIED FINANCIAL PLANNER™ professional, Lou provides comprehensive financial strategies for higher net-worth families and business owners to help protect and preserve current levels of wealth, plan for retirement, as well as, designing retirement plans for closely held businesses. Lou began his career with Dean Witter which evolved into Morgan Stanley. He then moved his practice to Smith Barney before forming Budd, Melone & Co., LLC with Co-Founder Joe Budd. Joe and Lou have worked together for the duration of their twenty-four-year careers in the financial services industry with offices in Michigan and Tennessee. Lou is a consultant for the Michigan Association of CPA’s (MICPA) Financial Planning Task Force and a featured speaker at the Michigan Association of CPA’s Mega/Summer Conferences for the past seventeen years He provides webinars for MICPA members across the United States. The topics have ranged from Behavioral Finance, Comprehensive Financial Planning Process, and Types of Qualified Plans for Small Business Owners Lou has a seminar series based on planning/behavioral finance for executive retiree groups at Fortune 500 firms, as well as, numerous other small to mid-size companies. He has been a columnist for DBusiness.com, Detroit’s Premiere Business Journal. He is an 8-time winner of 5 Star Wealth Manager Award as seen in Forbes Magazine and Hour Detroit Magazine Lou has a BA, Northern Michigan University, Certified Financial Planner (CFP® Certification), American College and a Certificate- Applied Behavioral Finance, IMCA®
Thank you so much for doing this with us! Our readers would love to ‘get to know you’ a bit more. Can you tell us a story about what brought you to this specific career path?
The short answer is; my passion for business, finance and coaching. I’ve been running businesses since I was 18 years old and have always had an interest in the number’s side of how they work. Finally, I’ve been coaching or teaching hockey since I was the age of 16 and from this have found they (coaching players or families on finance) have many similarities.
Can you share a story about the most humorous mistake you made when you were first starting in the industry?
You can view this as humorous and sad at the same time; Back in the early 90’s, I began my training with a Wall Street firm in NYC and while learning each department’s function, a few weeks go by and I finally asked when we were going to get more information about planning for clients. The response from the person at the firm was; don’t worry about that, just learn how to sell them our products.
Can you tell us what lesson or takeaway you learned from that?
The reality of the focus of most large brokerage houses…they are businesses whose primary function is to generate revenue.
Are you working on any exciting new projects now?
Not new projects but more of the rapid integration of technology into the lives of our clients’ families.
How do you think that will help people?
It simplifies the complexities that come with their financial lives. The easier they can grasp the concepts (visually), the more educated they become on future decisions. In addition, we’ve found by having a plan it helps remove the anxieties attached with those uncertainties.
Are you able to identify a “tipping point” in your career when you started to see success?
For our practice, it was in the late 90’s when we began to focus entirely on comprehensive financial planning, as opposed to market prognostication…which doesn’t work.
Did you start doing anything different?
Yes, the investments became a function of their cash flow needs and long-term goals, rather the other way around.
Is there a takeaway or lesson that others can learn from that?
Sure. Stop trying to predict the unknowable (markets and economy) and focus on what you know…the clients’ income, expenses and behavior. Because at the end of the day, you could guess correctly on those “unknowables” but if the client can’t stay invested and adhere to the plan, it’s all for nothing.
What three pieces of advice would you give to your colleagues in the finance field to thrive and avoid burnout?
Stop trying to be an expert in everything. A client’s financial success is not a result of investment performance…it’s the investor’s behavior. Focus on what’s important to the client’s long-term success, which is planning.
Can you give a story or example?
I was referred to a business owner from a CPA who had just sold their business. He was an older gentleman who was trained to always have the best performing “stuff.” He had no financial plan, and not a solid understanding about his personal cash flow needs to live the lifestyle that he wanted in retirement. Long story-short, after many months of his constant questions about performance and my “redirection” to cash flow needs and how it relates to his lifestyle, now, the first question he asks, “how’s my cash flow look for my plan?”
Ok. Thank you for all of that. Let’s now move to the core focus of our interview. As an “finance insider”, you know much more about the finance industry than most consumers. If your loved one wanted to hire a financial advisor (not you :-)), which 5 things would you advise them to find out about before committing?
1) What are you trying to accomplish? Investment Performance, Retirement Planning, College Planning, Budgeting, Estate Planning, Insurance Coverage or a combination of some mix?
2) Find out the Credentials of the person to which you are speaking. Are the credentials a fit for what you’re looking to get help? Are those credential “internally generated” by their own firm or an outside board who oversees it?
3) Are they or their firm held to a Fiduciary Standard?
4) How do they make their money?
5) How long has the person been practicing in the industry in your area of interest?
Can you give an example or story for each?
1) The majority of families don’t know what they are looking for, in turn they don’t know what questions to ask. In not knowing, the questions tend to all funnel towards investments which is usually not the primary goal…it’s can be a tool to help solve the primary goal.
2) Our industry does a terrible job of helping the public understand the difference amongst each firm/person primary function. It’s a virtual “Alphabet Soup” of titles that are thrown around, which adds to the confusion. Most families don’t realize that the majority of internally driven titles are awarded by how much commission that person generated in the year. For example, Vice-President of Investment or Senior Vice President- are all based on commission. In addition, titles like Retirement Planning Specialist is awarded by taking a computer-based test (given by that firm) which takes about an hour to complete…and voila you’re an expert in the public’s eyes.
In reality, there are only a handful of credentials that are overseen by a non-biased board that require continuing education, however each have a specific advice category for its designation:
a. Certified Financial Planning (CFP)
b. Chartered Financial Analyst (CFA)
c. Certified Public Accountant (CPA)
d. Chartered Life Underwriter (CLU)
e. Certified Investment Management Analyst (CIMA)
f. Chartered Financial Consultant (ChFC)
3) Here is another area our industry adds confusion to the public. A higher level of oversight traditionally has come from those who hold themselves out as Fiduciaries to their clients. Unfortunately, the SEC having implemented a “Best Interest” (BI) regulation just adds to the smoke and mirrors of the industry. Ron Rhoades, a fiduciary law expert, is interviewed in ThinkAdvisor Magazine as saying that the BI “is the greatest securities fraud in history.” As it makes Broker-Dealers “pretend fiduciaries” who think their duty of care can be satisfied with this new regulation. https://www.thinkadvisor.com/2019/06/21/ron-rhoades-sec-reg-bi-is-greatest-securities-fraud-in-history/?slreturn=20190815115824
4) The old saying, “follow the money” is the best way to understand if your advisors’ interest are aligned with yours. There are only so many ways the advisor can get compensated. The public needs to choose the model that best fits their needs:
a. Fee Only
b. Fee plus Commission
d. Wrap Fee (Asset Based Fee)
5) Why is this important? The attrition rate in our industry is extremely high the first three (3) years. In addition to potentially not having your advisor in the business anymore, they may not have any experience in what your looking for like estate planning, business succession planning or retirement planning.
I think most people think that financial advisors are for very wealthy people. This is likely not actually true. Can you explain who would most benefit from hiring a financial advisor and why?
It all depends on your area of need for advice, which goes back to the questions of what is that family looking to accomplish. Is it debt consolidation, college planning, retirement planning or comprehensive planning?
Overwhelmingly people look for advisors when they are nearing retirement, unfortunately that may be too late. In addition, you don’t need an investment advisor if your drowning in credit card debt.
None of us are able to achieve success without some help along the way. Is there a particular person who you are grateful towards who helped get you to where you are?
Yes. And believe it or not, I’ve never actually met or spoken to him. Nick Murray. Nick is what our industry would call the “advisors, advisor.” He has written numerous books and has a monthly newsletter that counsels advisors on how planning advice should be provided. In addition, building and maintaining an ideal financial planning practice.
Can you share a story about that?
The first book I read from him was called, “The Excellent Investment Advisor.” It was one of those Ah-Ha moments. At that point, I’ve been committed to running my practice and providing behavioral advice to those finite number of families who want to come aboard “The Ark of Financial Freedom,” as Nick Murray would say.
You are a person of great influence. If you could inspire a movement that would bring the most amount of good to the most amount of people, what would that be? You never know what your idea can trigger. :-)
I’m not sure I’m that big of a thinker…just become educated about your personal finances and the industry that serves it. Which is a nice way of saying, believe nothing of what you hear and half of what you see.
How can our readers follow you on social media?
My LinkedIN page: https://www.linkedin.com/in/loumelone/
I don’t tweet and I don’t do facebook.
Thank you so much for joining us. This was very inspirational.