Two Things Every Realtor Should Know Before Hiring a Financial Advisor

Life was great in 2008. I’d just sold the biggest listing of my career, a record-setter at the time. I’d had a few good years working my way up the food chain, selling more expensive homes, getting awards, media quotes, vendors chasing me—and I’d been able to finally start saving money again toward college educations and retirement, after a prior business failure.

business meeting


Then the stock market crashed.

I tried not to panic. It always comes back, right? That’s what the experts said.

So I gave it a few months, reading obsessively, trying to understand what went wrong, puzzling over how those crazy people on my real estate blog knew it would happen. They’d been predicting a crash for two years.

It didn’t come back. I lost nearly 50%.

The year before I’d hired a financial advisor, a real pro at a big-name firm who seemed to know what he was doing. Then I got a second one through my Solo 401K, who seemed even better, because he actually worked on Wall Street and droned on about the market in technical terms, so surely he knew what he was doing.

It felt fantastic, knowing these guys were looking out for me, expertly navigating choppy financial seas, making changes as needed, circumventing trouble. This is how I thought it worked, because that’s what I did for clients as a real estate agent—I closely watched all my transactions and babied them through to close.

But I was oh-so-wrong on two important fronts:

1) Just because you are a fiduciary, doesn’t mean your advisor is.

As Realtors, you’re required to act as fiduciaries when representing clients buying or selling real estate. You understand the seriousness of the fiduciary role, a legal relationship that establishes a state of trust and confidence.

I assumed that all financial advisors, those professionals exposed to our most intimate money secrets, were held to the same fiduciary standard. As it turns out, some are, some aren’t.

How is that even possible? I don’t know, but in the rigidly regulated world of finance, the loosey-goosey title of financial advisor seems like a complete anomaly:

“Financial advisor is a generic term with no precise industry definition, and many different types of financial professionals fall into this general category. Stockbrokers, insurance agents, tax preparers, investment managers and financial planners are all members of this group. Estate planners and bankers may also fall under this umbrella.” —Investopedia

Got that? Any one of those professionals can legitimately call themselves a financial advisor. So the real question to ask your financial advisor when seeking advice is this: Do you work for a broker-dealer or an investment advisor?

These are specific, industry terms with different meanings. A broker-dealer is in the business of buying and selling securities, and their agents are not fiduciaries.

While agents are happy to execute your transaction and make recommendations, they’re not required by law to act in your best interest.

Broker-dealers are paid on commission, so the temptation to steer you toward products that pay better, regardless of the underlying quality, is always there.

Investment advisors are in the business of giving investment advice for either a flat fee or a percentage of assets under management. They are paid by you, not by commission, and they are fiduciaries, obligated by law to act in your best interests.

My first financial advisor was an agent of a broker-dealer, but I had no idea at the time. His business card said, Financial Advisor, and his only obligation was to recommend suitable investments, not necessarily those in my best interest.

My second financial advisor was probably a fiduciary, because 401K plan trustees are held to ERISA standards. But frankly, I don’t know. Either way, even as a fiduciary, he couldn’t protect my account, as it lost about as much as the first one.

Which brings me to that second key thing you need to know:

2) Even if your advisors are fiduciaries, they may not be able to protect you from the next crash.

As a Realtor guiding clients through many, tumultuous transactions, I imagined my financial advisors would work in a similar way. I thought they’d be keeping a constant eye on my money, protecting my interests and jumping in if necessary to prevent catastrophe. After all, I’d granted discretionary trading authority.

Oh, so naïve! Instead, I learned that to set-and-forget is the norm.

The minimum legal requirement for an investment advisor to review your file is annually. Many do it semi-annually, some do it quarterly and a few may do it more frequently. In between, portfolios run with the market, while advisors keep a lookout for new investment ideas. Their fiduciary obligations to you can be fulfilled with this level of service.

What I erroneously expected from my financial advisors was more along the lines of an investment counselor. Google this term, and you’ll find thousands of generic results, but I returned to my investment advisor textbook for the precise definition.

An investment counsel provides continuous and regular supervisory or management services with respect to an account. The key word here is continuous. Not just once a week, once a month or once a year, an investment counsel provides investment supervisory services for your account all the time.

You might get this level of service with a hedge fund, but the downside is that these funds are opaque, illiquid, and you have to be an accredited investor to get in.

You may get this level of service indirectly from portfolio managers who run the mutual funds you’re invested in, but how many of those funds have the ability to move to cash ahead of a big market correction? How many will even see it coming?

We’ve been in a long-running recovery, but markets always correct. Nobody knows exactly when, but they will. Nothing goes up forever.

What will your advisor do when the market drops?

Recommend you stick it out because the market always comes back? That’s the conventional wisdom because that’s been the general history so far. But do you have the time required to recover from a catastrophe?

If you’re young, maybe you do. If you’re older, maybe not. What if you’re approaching retirement, and you don’t have another decade to wait for recovery?

My two financial advisors who didn’t see the crash coming were nice guys who seemed professional. They knew their products and technically did their jobs.

But I assumed they had more analytical ability than they did, that they would monitor my funds more closely than what was typical, and that everything would be okay because I had delegated money management to name-brand professionals.

Please learn from my mistakes:

  • Make sure your financial advisor is a fiduciary. Otherwise, they have no legal obligation to act solely in your best interests.
  • Find out what level of account supervision your advisor provides. Ask how they’ll spot the next crash coming, and what action they’ll take ahead of it.

With talented, proactive advisors managing your money, you may have a better shot at sidestepping the next bear market when it finally roars to life. This kind of attentive, active management is what our firm provides.

About Diane Cohn

Diane Cohn is a seasoned marketing professional with a background in real estate, finance and tech. When not geeking out on digital strategies for driving traffic, you'll find her on YouTube feeding her creator addiction.