Who’s Your Financial Advisor?

by | BiggerPockets.com

It’s probably safe to say that most people don’t have a financial advisor.

I know this because I used to be one, for a short time. We were actually insurance salesman, and a few of us may have had a securities license as well. This seems fairly common too, which is one of the reasons it can be so difficult to find a good financial advisor. Having a financial advisor may be the most beneficial when that person is helping you assemble your plan to reach your financial goals, instead of simply advising you about options that they offer/sell.

Of course, people need to have a plan, become more organized, and protect their families. The right financial advisor can help each of us think about utilizing insurance to replace our income, building wealth, saving taxes, or protecting our assets. This person could help us establish an estate plan, or even a legacy plan, which may be necessary since no plan means the government plan, and it may not serve us the best.

I remember Robert Kiyosaki (from “Rich Dad Poor Dad” fame) talking about how there’s so much information and advice available to us that it’s hard for many of us to decipher it all.  So, how can someone sift through it to know whether they’re getting the best, most comprehensive, and most accurate information possible?

Well, there are several points from Kiyosaki’s teachings that I am in total agreement with…

Tip #1 – Ask Your Advisor, “Do you make most of your money as a financial advisor or as an investor?”

This is one of my favorite lines.  In fact, Warren Buffett said, “Wall Street is the only place that people ride to in a Rolls-Royce, to get advice from those who take the subway.”  When it comes to money there’s plenty of salespeople, who want to show you how to become rich.

Now, I’m not saying all financial advisors are bad by any means, I’m just saying it can be difficult for the average person to differentiate and to manage all the information that’s thrown at them.  I like to think of it more like an interview process. If I want a financial advisor’s services, I’m really the one hiring them, right?

So maybe I would ask them “How do you get paid?” Now, they could be paid at an hourly rate, which could be a little more expensive, or by assets under management, meaning that they get paid based on how much money you make with their advice. Both of these options exclude planners, who make the majority of their income in commissions. I’m certainly not saying all planners, who work off of commission, are untrustworthy. I know of a few great ones, but the difference is that they put the client first. There are several other questions you can ask to get a good sense of the person you’re dealing with:

  • What type of policy do you have?
  • What do you invest in?
  • What makes your policy different than all the other ones out there?
  • Or, what’s new right now?

After you ask some of these key questions, you get a better sense of who you’re dealing with. If they won’t use what they’re offering you, it could be a red flag. But, if they are up to date on what options are out there, have similar investing goals and still choose the option(s) they’re offering you, it may be a better fit.

Tip #2 – Ask, “Will You Guarantee It?”

How many times have we all been told to invest for the long term, to buy-and-hold, or to be sure to diversify?  Or, we’re told to invest in the stock market because it always goes up? Then there are real estate salespeople, who say that this particular area is up-and-coming and “you can’t lose money.”  The real question we should ask is will they guarantee it.  One thing that I think we can all guarantee is markets will rise and markets will fall.

Like Rich Dad says, “It really comes back to how we manage financial information.”  A savvy investor can distinguish if something is a fact, an opinion, or a principal.

Fact – something that can be proven with evidence.

Opinionmay or may not be based on fact.

Principle – true in all cases.

A few months ago, I went to separate lunches with two different types of financial planners.  Yes, there are some paid by commission from products they sell for affiliates, and some are paid an hourly consulting rate.  But, that’s not what I’m talking about.  One was just interested in making a sale, and the other was interested in me and really helping my situation.

“People love to buy, but hate to be sold”– Jeffrey Gitomer

The one planner, who was determined to tell me what I needed, wanted me to send him over all my information so he could see what he could do for me.  I said, ” Really, I’ll tell you what, send me over your plan, and the companies you personally use, and why use them, and if I like what I see, I’ll send you over all my stuff.  Needless to say I’m still waiting.

Tip #3 – A Wolf in Sheep’s Clothing

Some planners may be like a fox guarding the hen house, meaning that they are working in their own, or their company’s best interest, rather than the individual’s. So, even if that planner is a savvy investor and has an investment that he/she can speak to or guarantee, would that information get passed to you?

When I was working as a planner, I sold insurance policies to friends, relatives, and so on, thinking that I was getting them the best product. But, when I went to get my own product, my boss actually stopped me. He said, “you don’t want that,” and he pointed me in the direction of something better. So all the time that I was offering these policies; my boss’s focus was on commission/making money, instead of having me advice my clients towards the best product. It was difficult for me to stay there after that.

However, there is a grey area here. For example, my business planner, who is paid commission by the way, actually told me to keep some of my policies. That’s how you know you have a good one, because that person is thinking of your needs before their payment. Someone, who’s thinking of their payment before your needs, may advise you to change all of your policies, regardless of whether they’re the best fit for you. But, here’s where it get’s grey.

There are times that a new policy is better than your previous one, so how can you tell the difference? Well, that’s where research can help you.

Educating yourself in what options are really available to you and knowing what questions to ask is an invaluable way to protect your best interest. To be better prepared, I suggest reading some good books like Douglas Andrew’s “Missed Fortune 101″ or R. Nelson Nash’s ” Becoming Your Own Banker – The Infinite Banking Concept,” before your next meeting. As Douglas Andrew taught, with the insights you gain through research, “choose not to always accept conventional advice on your journey toward financial independence.”

So, why is financial planning still important for a savvy, cash-flowing real estate investor?

Many real estate investors tend to avoid planners altogether. Maybe they feel their investment real estate is the answer to everything, or maybe they don’t have an advisor that they feel they can trust.  I can definitely relate to this, but it can be a major mistake, as there are many things someone could be missing out on by not utilizing a good plan.

As Douglas Andrew described, there are actually six components of sound financial planning:

  1. Cash Flow Management
  2. Credit Management
  3. Asset Management
  4. Risk Management
  5. Tax Planning
  6. Estate Planning

An active real estate investor may already be employing several different strategies for cash flow management. But, whether you’re a newbie or seasoned investor, there are several other areas where unique wealth building strategies can be employed.

For example, one of the biggest misconceptions that people have is that it is always best to pay off debt, instead of leveraging debt. But, if you read Andrew’s book, you may start to think differently.

Paying off Debt vs. Leveraging Debt

Say you owe $200K on your primary residence at a rate of 6%, and you have an extra 25K available to you. Maybe you’re considering paying the 25K against your mortgage so that you would only owe 175K. But, another option would be to place the 25K in a conservative investment vehicle, such as an IRA/Retirement account, insurance policy (no variable rate), or an annuity. And with either of these, you were able to get a 5-6% return. Would it be better to pay the 25K to the 1st mortgage or put that money in a conservative investment?

Scenario 1: Paying it down on the property.

By doing this, you would reduce your mortgage interest deduction (the biggest tax deduction the government gives you). You also lose liquidity of the 25K, because you can’t access it very quickly/easily—you would have to take out a home equity loan or refinance to get that money. You would be making no rate of return on that money (the bigger the down payment, the lesser rate of return you make).

Meanwhile, the house will appreciate, whether you pay it down or not. Also, you just put that 25K at risk, because the property could drop in value, as market conditions are out of your control. It is also exposed to creditors and lawsuits, and you have less asset protection through debt.

Scenario 2: Placing it in a safe investment vehicle.

If you put the 25K in a conservative, tax-favored investment vehicle at 5% interest, you would be keeping your higher mortgage interest deduction. You would have liquidity to your capital. You would have taken risk off of the table instead of adding it. You would get a return on your 25K, and it would build tax-free or tax-deferred in the investment vehicle.

The fact that there’s no tax on the 5% means that it’s actually a higher yield, depending on what tax bracket you’re in. The money passes favorably to heirs and avoids probate in the event of death. It’s also protected from creditors, lawsuits, and bankruptcy.

Personally, I prefer to see my house paid off on a balance sheet as opposed to reality. As Doug Andrew’s said, “A home can be ‘paid for’—even though it may be mortgaged to the hilt—if you have sufficient liquid assets in a safe environment that could wash out the mortgage.”

Now, this strategy may not be the most commonly shared, but this type of insight can be gained through reading books like “Missed Fortune 101” or having the right financial advisor.  Some people, simply, may not have found access to this type of information. But, if your advisor can speak to you about less conventional options and is knowledgeable about them, you may have found a strong ally.

Keep in mind, when hiring a planner, or any type of advisor, you should be on your guard as to who you let on your team. What’s their track record, were they referred to you, and do they work with super successful people? One good giveaway is whether the planner asks you questions about your wants and needs or whether he starts to tell you what you need. This is a huge difference.

So, how do you hire your advisors?
Photo Credit: Dave Dugdale

About Author

Dave Van Horn

Since 2007, Dave Van Horn has served as president and CEO of PPR The Note Co., a holding company that manages several funds that buy, sell, and hold residential mortgages nationwide. Dave’s expertise is derived from over 30 years of residential and commercial real estate experience as a licensed Realtor, a real estate investor, and a fundraiser. As the latter, Dave has raised over $100 million in both notes and commercial real estate. In addition to his investments and role as CEO, Dave’s biggest passion is to teach others how to share, build, and preserve wealth. He authored Real Estate Note Investing, an introduction to the note investing business, helping investors enter the “other side” of the real estate business.


    • Hi Dawn, I can certainly understand that. I think we can all benefit from educating ourselves to a degree on this topic—any insight you’d like to share on how you did so? What are some of your current strategies when it comes to financial planning?

  1. The first part of this article felt like you were talking about me. I worked for the same type of place and had the same type of experience. I couldn’t bring myself to sell these products that I didn’t think were a good match even with the company breathing down my neck. It was actually the only job I have ever quit without a backup plan. I was just done. I am however thankful for the knowledge I gained through the experience.

    I do agree though that there are good folks out there to help you. There is just so much information available and if managing finances is not your main job, there is probably a good chance you may be missing something that might benefit you.

    Good article!

    • Hi Ian,
      Thanks for sharing your story!—it sounds like we were in a similar situation. I definitely agree that there are good folks out there to help you and a lot of information is available. It’s just learning how to sift through that information and finding that right person, who has a great track record and won’t be focused on selling. I still believe it’s really those three things to be successful: networking, education, and a mentor.

  2. Dave, thanks for sharing.

    This is as broad of a topic as is the topic of what tools (hammers, screwdrivers, calculators and phones) a real estate investor needs … meaning it would fill several pages here to touch on all the aspects.

    You are very correct in stating that they manner in which financial professionals receive their compensation affects how they operate and recommend. It is too bad that these financial pros cannot act as partners … when the client succeeds, the pro benefits … when the client ‘misses’ targeted goals, the pro earns less (or nothing).

    The 4 steps in wealth management are
    Create and Grow Wealth
    Protect and Preserve Wealth
    Plan the Distribution of Wealth during Life in the Most Advantageous Way
    Plan for the Distribution of Wealth at Death in the Most Tax-Advantaged way

    (NOTE: I have a longer description and will share via email to anyone that requests a copy)

    The leverage topic also has many pluses and minuses.

    I have stated in other blog posts that most people would be well served to meet with a financial pro (or several) along with accountants and attorneys (all experienced in personal financial plans) to THOROUGHLY discuss a lifetime financial plan.

    • Hi Kevin,
      I agree that this is a pretty broad topic, but I also think it’s a necessary discussion. There are some planners, who make their money from assets under management, and those may be the closest to the partnership you described.
      The 4 steps in wealth management you mentioned are great points.
      Concerning the topic of leverage, what are some of the pluses and minuses you have in mind?
      I also agree that it is important to bring in all the players (i.e. the accountants, attorneys, business planners, insurance agents, and so on).

      • Dave, in regards to leverage, the obvious plus is the use of “OPM” – other people’s money. If I can buy a property with no money down (100% financing either from a seller or a lender) then all of the net income (after paying interest on that debt) comes to me. Similarly, any increase in the value of that property is a gain on my balance sheet.

        I chose the phrase “balance sheet” because that gain does not reach my pocket until I sell the property and pay off the lenders.

        The biggest minus is just the opposite side of that same coin. If the property declines in value, that loss is directly on my balance sheet. I just don’t realize that loss until I sell the property. BUT, that underwater position could cause (entice) me to make different decisions in regards to the property such as curtailing maintenance or cutting the insurance … moves that not only affect me but moves that may also affect the lender.

        If I hold the highly-leveraged property in a business entity (LLC perhaps) it can be an easy decision to walk away from the underwater property since I have already lost my equity. If the lender forecloses and then sells the property, the lender may incur a loss. Lenders have been through that rodeo (many times) and seek to protect their position chiefly by requiring a significant equity stake and including loan covenants about insurance coverage etc. The higher the leverage, the higher the interest rates charged.

        The real estate investor needs to decide if the extra interest costs are worth paying versus making a larger downpayment and tying up equity in a property.

    • Hi Paul,
      Thanks for the positive feedback! You’re definitely right that there’s more to financial planning than just the insurance aspect—it’s just one component. I can’t speak to your situation, the financial planners you met with, or the policies they offered you. That being said, it is a grey area because not all whole life policies are created equal, and many of them are utilized differently depending on the client’s situation. There are basically two types: some are geared towards death benefits, and others are geared more towards building cash value inside the policy so it can be accessed for other investments. The latter sometimes has more functionality for investors, who utilize different strategies than most people do with their whole life policies.

  3. Anthony Martin on

    Great article!

    I was so absolutely fortunate to find my financial advisor. I simply decided one day that I needed help because there had to be more information I wasn’t seeing. I like to think of this information in my ‘4 Knowns’

    There are things:
    You know that you know
    You know that you don’t know
    You don’t know that you know
    You don’t know that you don’t know

    I know there are others out there who know so much more than I do. I googled local financial advisor and essentially threw a dart at the dart board of listings, made the phone call to have an interview and that was it. I walked in pretty sketpical. Now my net worth isn’t the most incredible thing, but I want to protect the little bit that I have so I was hesitant to trust the little I’ve saved to a stranger. From the moment I sat down, I was at ease with this fellow. He shared his history and how he came to where he was, asked me about my goals and told me to come back in a few days to see what he had setup. He knew nothing about my actual financials in the first few visits and when I saw what he came up with, I was happy. Not once has he tried to sell me anything, but he’s always available when I have questions (even from a deployed environment) and always finds a way to push me towards my goals of financial independance.

    Again great article, now I have to find a CPA to help me manage that aspect. I’ll have to try and apply these principles to that next step and see what I can come up with!

    • Hi Anthony, thanks for sharing your story! It seems that you were pretty fortunate to find a financial planner that you were happy with in you first meeting. For some people, this hasn’t been the case. It might be helpful on your search for a CPA to utilize referrals in order to find someone who is geared towards serving clients with similar goals as yourself.
      All the best,

      • Google “beta”, a lot to be said for risk with investments. Also a tax deduction would still exist on the unpaid portion of the mortgage & most people pay much less than 33% in taxes.

        • Hi Dennis,
          I respect your opinion, but although you may be saving interest by paying it down, you’re not making an actual rate of return, like you could for the same amount or more in a safe, liquid investment vehicle, while keeping your larger mortgage interest tax deduction. For example, if I pay it down, it’s not liquid, and it’s not safe if the property drops in value (a huge risk). Then, I won’t be able to access that capital, even with a home equity loan (if I qualify for one). In the event of BK or foreclosure, money in an IRA, a life insurance policy, or an annuity would not be at risk like the equity in a house would be. Also, these vehicles build tax free or tax-deferred, so a 5-6% return, depending on what tax bracket you’re in, could be more like 7 or 8%. That being said, it is all a matter of preference. I prefer to have my cash available and making a return, and having the freedom to pay down debt if and when I want to without being vulnerable to creditors.

  4. I like your style, Van Horn.

    I just ordered the two books you talked about. I am familiar with the concepts and have been trying to live by them. But, I still will (most likely) learn more from the books.

    I always enjoy your writings.

    • Hi Jason R, thanks for the positive feedback! I will most likely learn more from these books as well. I’ve already read “Missed Fortune 101” several times, especially to revisit concepts or strategies that I may have overlooked.
      All the best,

  5. Excellent article. I wish I could find a good financial planner to cover all the topics that you covered. I should work harder at finding a finacial planner, tax planner, estate planner, etc., but at this point, I’m building wealth as best I can. I’m not very happy admitting this, but it is what it is. I’ve made attempts in the past, but haven’t been happy with the results. I could try and try again, but for the time being I’m worrying about other things.

  6. Dave, I always enjoy your articles. I manage an environmental consulting business serving commercial lenders. I am working my way into the residential note business, learning and preparing carefully. I am in the process of reorienting my families investment vehicles. I have read a lot about the advantages of the Infinite Banking Concept (IBC) of using a whole life insurance policy, properly structured, to provide greater growth than a money market account and provide investor flexibility on the money invested. I do not know whether this method would be best for note investing or to use a self-directed IRA, what is your opinion? My second question is where can I find a financial advisor who is familiar with IBC and self directed investing options and vehicles? Thank you Dave, Gordon, near Washington, D.C.

    • Hi Gordon, thanks for reading! As far as the IBC using a whole life policy or utilizing a self-directed IRA, I do both. I can’t say that I like either more, because they both have different features. I’m not familiar with anyone in the DC area, but I’m sure there are decent advisors available. I suggest interviewing some of them to see who’s knowledgeable on IBC and IRAs. Or, see which financial advisors are working with the self-directed IRA companies and local REIA groups. They tend to be a little more in-tune with non-traditional investment strategies.
      I hope some of this helps!

  7. I just wanted to say thank you Dave. I have read Patrick Kelly’s Tax Free Retirement, at the the I could barely make ends meet. I am a little more comfortable now with a stable day job, a budding real estate portfolio (1 single family home!), and I am starting a side career as a real estate agent. Strangely enough I was talking with a vendor at a REIA holiday party who was giving out Tax Free Retirement as a raffle prize. My wife and I had a meeting with them on Monday and they were more interested in me selling for them than me buying a plan. I don’t quite know how to read that one, other than it seems an little MLM. I believe coincidence happens for a reason so I will read the books you suggest and check this company out thoroughly.

    Thanks again Dave!

  8. Good article.
    I have been thinking more about finding a financial advisor to help structure a cohesive plan for my family. It is tough with all the pure salesmen that want to sell you insurance and funds that they make money on. Maybe the choices are good and and appropriate vehicles for you, but maybe they aren’t. If you know they make the most money off them the line is blurred at the very least.
    We did see one many years ago and all they did was peddle their products and give super lame advice. Kept trying to get me excited about a debt reduction plan mostly focusing on our credit cards. New it wasn’t a fit when he couldn’t understand we would pay all of them off that month OR had 0% interest and we were making money on the cash until it was due.

    I have some names from local REI meetings so I’ll hopefully have a better experience this time. 🙂

  9. David Befort

    I just stumbled across this article while searching “financial planners” on BP. My financial beliefs and strategies seem to match yours pretty well. I’ve been practicing IBC since 2010 and put about 25% of my annual income into my policies. The comments above reminded me of a comparison I did awhile back on IBC vs. self-directed IRAs. I wrote down the positives and negatives for using my IBC policies or my self-directed IRA accounts for real estate investing. My results lead me to believe that I would rather fund more policies as opposed to putting more money into a self-directed IRA (even Roth). I would love to get your feedback on my analysis below! I use the abbreviation “PRS” below for Private Reserve System (same thing as IBC). Thanks in advance for any feedback you can give.

    Benefits for Self-Directed Roth IRA (that PRS doesn’t get):
    – tax free profit on real estate earnings

    Benefits for PRS:
    – get to take advantage of tax benefits for real estate
    – not “forced” to invest the money if I don’t have a good investment option (“Forced” because otherwise it is just sitting still in a self-directed account)
    – it will continue to earn 5-7% when not in use
    – no fees
    – no lost opportunity cost
    – no “disqualified persons” clause
    – I can actively manage/repair/etc any and all real estate

    Negatives for Self-Directed IRA:
    – don’t get to take advantage of RE tax benefits???
    – Fee’s (several hundred per year minimum)
    – money has to remain outside of the IRA in order to make profit
    – minimum amount must be kept inside the IRA, so you can’t earn anything on that
    – “disqualified persons”
    – I cannot actively manage any RE; sweat equity not allowed
    – UBIT
    – may be tough to secure a loan to finance a property; can only be a non-recourse loan (I can’t personally guarantee the loan)
    – expenses are not tax deductible
    – all expenses MUST be paid through the IRA
    – Must have enough money sitting in the IRA (not earning interest) in order to cover expenses; you can’t pay expenses out of your own pocket
    – what happens if there is not enough money in the IRA to cover expenses and you have maxed out your contributions and rollovers???
    – can’t take any distributions until 59 1/2 years old
    – monthly interest payments or rent payments will sit in the IRA until enough is gathered to invest in something else
    – Velocity of Money is SLOW

    Negatives for PRS:
    – will need to generate enough income or keep enough cash value in place to pay the premium amount each year (but you really only need to pay the face value premium to keep the policy in effect, which is way lower than the PUA premium)


  10. Dave Van Horn

    Hi Dave,

    You’re absolutely right with all of the points you made above, the IBC or PRS can have A LOT more flexibility than other retirement vehicles.

    There is one disadvantage of the IBC that I didn’t see mentioned that I thought I should point out. The IBC is based on life insurance policies and unfortunately some people are more insurable than others. But I should also add, there could be multiple workarounds for such a scenario.

    All that being said, I still utilize both buckets. Now I personally put a lot more into my IBC than my Self-Directed IRA, but there are certainly instances where it makes sense to use one or the other. For example, I recently started a company with my IRA – buying shares in the company with my SDIRA capital. Since I’m a class A member of that company, many years from now down the road when I go to sell the business, I can (hopefully) make a substantial profit that is entirely tax free.

    So it all depends on your investment vehicle, your goals, etc. But it sounds like you run a pretty tight ship and you’re definitely on the right path in terms of making the most out of your money!

    Best of luck and keep in touch.

    – Dave

  11. Mike Cleveland

    I loved this article. I just posted here on BP today recommendations for a financial advisor, specifically one who is familiar with what we are doing with notes, investing in debt, CRE, etc.

    We just cannot seem to find a financial advisor who is able to help us make a plan for our upcoming transition (from full time employment to full time investing) but I’m sure they are out there.

    If you have any recommendations I’d love to hear them.

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