What To Ask Before Hiring Your Parents' Financial Advisor
Right after I graduated from college, I bought a used Toyota Prius. It was my first time buying a car, and it was by far my largest purchase to date. I remember making multiple phone calls to my parents from the used car dealership asking things like, “Does the Carfax look okay to you?” “Should I take it to Toyota for an inspection?” “When do I update my car insurance?” I was nervous, and naturally looked to my parents for their guidance.
This instinct makes sense! However, when your financial life starts to get a bit more complex, calling "the guy” (tbh, it’s usually a guy) who has managed your parents’ portfolio for twenty years might not actually be the best move for you.
For the record, I don’t have anything against your parents’ advisor! I’ll assume they are trustworthy, good at their job, and most importantly, have a great relationship with your parents. I’m also going to assume they actually do financial planning vs. just managing investments. (Read more about that here if you’re curious).
While there are always exceptions to what I’m about to say, in my experience, your parents’ financial advisor is likely the wrong person for you. Not because they aren’t doing a great job for them, but because your life and your financial needs are completely different from your parents’.
Here are three things to consider and seven questions to ask before hiring your parents’ advisor:
1. You Are in a Different Season of Life
Financial planning isn't one-size-fits-all; it is highly dependent on your life stage.
Your parents are likely in the spending or “money decumulation” phase. They might be retired or near retirement and are now spending the money they so tirelessly saved. Their goal is likely some version of: enjoy retirement without running out of money before they die.
However, you are likely in the saving or “money accumulation” phase. Maybe you are working full-time and considering growing your family, or saving for a home while self-employed, or thinking about starting your own business. Your goal is some version of: enjoy your life and feel confident that you’re also saving enough for your future self.
The advisor who is an expert at helping your parents withdraw their money in the most tax-efficient way might not be an expert at talking you through options on how to merge (or not merge) your finances with your new spouse or walking you through buying your first home.
You’ll likely be better off working with someone who is intimately familiar with the types of challenges and opportunities you’re experiencing.
2. You Might Be A Small Fish In A Big Pond
If your parents use an advisor whose fee is based on a percentage of their "assets under management” (the amount of money that the advisor is managing), you’re (likely) a less profitable client for them. Optimistically, your parents’ advisor still gives you the same attention and time as any other client (and they also have a vested interest in keeping your parents happy). But realistically, you’re a small fish.
For example, let’s say your parents have a ~$2M portfolio and they pay the advisor 1% or $20K/year and you have a $50K Roth IRA. The fee you’ll pay your parents’ advisor is $500/year (assuming they also charge you 1%, it could actually be higher than your parents’!)
Now this may not be a problem for you, in which case, great! I’m glad to hear it. But if you aren’t sure how you’re being charged, or you’ve gotten the feeling their advisor is “doing you a favor” whenever you ask a question, that’s something to pay attention to. You deserve an advisor who is genuinely stoked about your milestones, both small and large.
3. Financial Intimacy & Privacy
Money is emotional! To get the most out of your relationship with your advisor, you need to be able to be 100% honest. While advisors are held to very strict confidentiality standards, it can sometimes feel weird to discuss highly personal financial information with the same person who also discusses that with your parents.
In addition, what’s best for your parents may not be best for you and vice versa. If there is ever a conflict, loan, or estate planning issue, it’s important you have an advisor who is objective and 100% in your corner. Someone who has worked with your parents for decades may naturally have a bias.
Here are six questions to ask your parents’ advisor before you hire them:
What is your experience helping people in my phase of life?
Will you be my primary point of contact?
How do you incorporate my personal values into the plan?
Can you help me with cash flow, student loans, equity compensation, proactive tax planning, buying my first home, etc.?
Are you a fiduciary 100% of the time? (I hate that I even have to recommend you ask this because being a fiduciary is truly the bare minimum. This is a 'yes or no' question. If they say 'sometimes' or 'it’s complicated,' that’s a red flag.)
How exactly are you compensated?(Are they fee-only or do they earn commissions from the products they sell you? Do they charge a percent of “assets under management” or a flat fee? Something else? Just be sure you feel 100% clear on how they make money.)
