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Updated almost 6 years ago on . Most recent reply

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Clarence Watkins
  • Rental Property Investor
  • Chicago, IL
5
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34
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As a REI what do I look for in a financial advisor?

Clarence Watkins
  • Rental Property Investor
  • Chicago, IL
Posted

I am new to BiggerPockets. I’ve been doing property management, building fixing and holding for near 40 years - the last 20 years independently. My wife and I are retirement age now. She wants the security now of a financial advisor. I am ready to expand. We have 4 buildings now and I am wanting to grow that for retirement income to at least 4 buildings more. Is a financial advisor recommended? What kind? Does it matter? Thanks for your input.

  • Clarence Watkins
  • Most Popular Reply

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    Paul Allen
    • Financial Advisor
    • Virginia Beach, VA
    508
    Votes |
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    Paul Allen
    • Financial Advisor
    • Virginia Beach, VA
    Replied

    @Clarence Watkins you will likely get a variety of answers to that question about whether or not it is important for the advisor you hire to be a real estate investor. I'm in the camp that says knowledge is important, but experience is optional. By way of analogy, if I need an oncologist, I wouldn't narrow my candidates to the ones who have had cancer. A thorough knowledge of it will suffice.  

    Here are the things I think are more important than real estate experience:

    A fee-only fiduciary. Make them put it in writing and sign it. "Fee-only fiduciary". If you don't know why that's important, Google it. 

    For REI's I would avoid an advisor who charges based on assets under management (AUM). You can be a fee-only fiduciary advisor and charge AUM, but for the advisor with a client holding real estate it creates a conflict of interest. The advisor can bill you on your securities portfolio, but not on your real estate portfolio. This creates an economic incentive to the advisor for you to liquidate your real estate and buy securities (stocks, bonds, mutual funds). Can they still give good advice despite that conflict of interest? Yes, absolutely yes. But if they advise you to sell the real estate to buy securities, do you trust them? It might be the right advice, but you'll always wonder. The easiest way to deal with a conflict of interest is to eliminate it altogether. Find someone who charges a flat fee and no AUM.

    Credentials are fine, but in all honesty have limited utility. Five years ago I answered questions on the CFP exam about the yield-to-call on callable convertible securities, and passed.  Don't ask me anything about convertible securities today. I haven't thought about them since! 

    You'll learn more by interviewing advisors. Don't just read a couple of websites and Linked-In profiles and pick the best one. Interview them like you're hiring an employee (because you are!) Interview 5 or more. Ask them hard questions like "How are you compensated." Listen to the questions they ask you. Are they asking about your goals or are they asking about your money? 

    I read recently that 65% of Americans don't trust financial advisors. Most days I think the other 35% are just naive and gullible.  There are a few good ones, but if your starting position when dealing with one is suspicion and distrust - well, that's probably just your good sense talking.

    Thanks for the chance to get on my soapbox.

    Best of Luck in All You Do!

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