July 15, 2019 — Hiring a good financial advisor is a difficult job for most people. Although there is no shortage of solicitations that appear in the newspaper, come in the mail, or through a phone call – how do you know if the person who tells you they are so gifted is really that great? Someone who will look out for your interests, not cheat you, protect your hard earned savings, and actually make your savings grow. After all, your money represents your financial security, which makes making this decision so important and so difficult.
A while back we profiled a number of tips for hiring a good financial advisor (see Further Reading at end). This feature will build on that and provide some tips for how to evaluate the person you hired, or the one(s) you might be considering for the job.
Seven things to look for
Trust your instincts. Your intuitions and first impressions are always important. If you feel like you are being swept along into a decision and little voices tell you something might not be right – stop and listen. Further exploration might clear them up, but never dismiss your reservations.
Does your advisor stay in touch? A good financial advisor does more than send you monthly or quarterly reports. The best ones reach out to meet with you to review how your portfolio is doing (successes and disappointments) and discuss options to improve performance. When the market gets scary, do they reach out and help you focus on the long term? If you are not hearing from your advisor regularly, it might be time to look around.
Are they helping you build your financial IQ? If your advisor puts on seminars and meetings that is a good sign that are involved in a partnership, with you as part of the decision making team. And that they are staying current with the latest developments.
Whose interest are they looking out for? A fiduciary is someone who must act to protect the client’s interest above their own. Find out if your advisor is pledged and registered to be a fiduciary – if not, be wary. Financial advisors seem to have an endless supply of certifications and initials, but there is a difference in them. Some are more stringent than others, with a Certified Financial Planner (CFP) being one of those that require the most hours of training and qualifications.
Who’s getting paid. Financial advisors get paid in a variety of ways. Be wary of commission based compensation structures. There, it might be in the best interest of the advisor to churn your account or invest in fee based investments (load funds) that probably don’t return any better than no-fee products. Your advisor should advise you if they receive any commissions on your behalf, if they don’t tell you – ask!
How strategic are they, and what kind of products do they recommend? You can find out a lot when you first meet an advisor. What can they tell you about their investment philosophy? If they don’t start with finding out your goals, that’s bad. If they don’t recommend an age-appropriate balance of growth, fixed income, and cash – watch out. Do they recommend rebalancing periodically? Do they concentrate in a few, seemingly random stocks or bonds, or do suggest an approach that makes strategic sense, balancing risk and reward where not too much gets put in one basket? Be wary of fee based funds and too much emphasis on products like annuities, limited partnerships, and the like. For our money, index funds and large cap stocks and bonds are safer than taking lots of risks in companies or products you never heard of.
How to find a good advisor. Hiring a financial advisor is tough, with the outcome being very important. So it is worth spending time finding a good one (and if your resources are high enough, maybe having two). Ask your friends and relatives for recommendations. Or successful people you know. Be wary of faint praise. Let talk with several and see for yourself.
Comments? How did you find your financial advisor? We would love to hear how you did, and if you are happy. Please share any tips that would help others in this difficult task in the Comments section below.
For further reading: