Financial advisors are an integral piece of your financial life, and as such, you should choose them with care. Even if you’ve done your homework and choose to work with a fiduciary financial advisor and a retainer based financial planning firm, it’s still important to determine whether the fit is a good one – do you communicate in a way that works for you; do you want the same things (a long-term commitment; help with several concerns); do you fall under the firm’s primary client, and therefore, your advisor has worked with issues like yours?
A good fit is crucial – you may be entrusting your financial advisor with your savings for retirement, your estate planning goals, your income tax decisions, your risk coverage and many other factors. A poor financial advisor can jeopardize your assets, whether deliberately or through lack of expertise or competence. Take the time to ensure that your advisor is a good fit for your financial planning needs before entrusting them with your future.
Deciding on an Advisor
Talk to as many advisors as you need to feel comfortable that your final choice will be a good fit for you. Some financial advisory firms, like Financial Freedom, offer complimentary first-time meetings for prospective clients in which you can describe your financial situation and what you need from an advisor, and the advisor can describe his or her services that might be beneficial to you. Trustworthy advisors will also be able to communicate when the prospective client may not be a good fit for them.
In your meetings with prospective advisors, consider whether you have a good rapport with them. Do you feel comfortable asking them questions, and do they explain their answers well? Do they give you all the time you need to talk to them, or do you feel like they are trying to rush you to the end of the meeting to pitch you their services? Do you feel like they value your time and your needs?
You should also discuss with the advisor how they will take your values into consideration in their services. Advisors should understand your risk tolerance, your goals for your assets and which types of investments you are willing to consider. A good financial advisor will also proactively seek to understand your values and priorities, such as gifting to loved ones or charities.
Lastly, does the advisor offer references and the ability to talk with current clients and professional resources? Talking with references can help reinforce your initial thoughts and help confirm that you’re making a good decision.
Advisors can vary greatly in how they interact with you and how they approach the financial planning process. Be patient and keep looking until you are confident that you will enjoy working with the advisor you have selected.
Understanding the Advisor’s Planning Process
You should also determine what your ongoing relationship would be like with an advisor you are considering. At some firms, the financial advisor you talked to at your initial meeting will not be the person who is primarily responsible for managing your account. Find out whether you would be working with someone other than the advisor you originally met. Who will be making the primary decisions about your account? Who will be the “point person” for you to contact with questions? At Financial Freedom, you work directly with the two principals who you would initially meet with.
You should also decide whether you want to work with an advisor for a set period of time (or even a single meeting) or on an ongoing basis with no end date. If you only need guidance for handling a specific situation (such as receiving an inheritance) and do not need ongoing asset management, find out if the advisor is willing to provide this service.
If you want an ongoing relationship, find out the advisor’s standard process for scheduling meetings. Many advisors meet quarterly or annually with their clients. Do they have a structured agenda with topics to cover in every meeting, or is the meeting more casual? Will they meet with you more often if you request it? In general, determine whether the advisor will be able to adapt to your preferred level of involvement and communication with your financial plan.
Also, what communication occurs between meetings? It’s important to understand how accessible they are for emails, phone calls and video conferences. How quickly do they respond to your emails or return voicemails to you? What communication will they proactively send to you?
Finally, advisors also differ in how they bill clients for their services. They may charge an hourly fee, a set retainer fee or a percentage of assets invested with them. Make sure you understand the advisor’s fee structure and what your estimated cost will be. (Read this recent blog post to understand the difference between retainer based financial planning and commission based advice.)
The Advisor’s Typical Client
Another beneficial step is understanding how you compare to the typical clients that the advisor specializes in working with. Seeking a good fit is important because you will benefit from the advisors’ previous experience working with clients like you.
Many advisors only work with clients who have above a certain threshold of minimum investable assets, meaning the assets that can be easily converted into cash, such as equities, bonds and mutual funds. An advisor or firm that requires a minimum amount of assets to invest can offer expertise with the needs of higher net worth clients.
Integrating the Advisor Into Your Team
Think of your prospective advisor as a member of your financial team. For many clients, establishing their advisor as the team’s “point person” is the best approach to ensure that their financial plan is fully implemented and that all the other team members have a unified understanding of their client’s goals.
If you do not have professionals you are already using (such as insurance agents, estate attorneys or accountants), find out whether the advisor will recommend professionals. If so, does the advisor receive any benefit from recommending them in particular? If you already have your own team, find out how well the advisor will work with the other members. Are they willing to coordinate everyone’s efforts within the team?
Final Thoughts on Selecting an Advisor
If I can leave you with one piece of advice it would be this: Do not select an advisor or firm until you are satisfied with their answers to all of your questions and you feel comfortable entrusting your money with him or her. If you are not confident about your choice and whether the advisor will handle your assets well, you are missing one of the benefits of using a financial advisor: Peace of mind from knowing your finances are in the hands of experts. Keep searching for a financial professional until you find one who earns your complete confidence.