Trying to select a financial advisor is complicated. The sheer number of choices and titles are bewildering and complex, and the quality of the advice you receive can literally make or break your family’s fortune. Who can you trust? Some argue it’s a science, others an art, but we suggest an analysis with both your head and your heart.
For Your Head – Appeal to your logical side with an apples-to-apples comparison by examining the advisor’s background and business structure. You can get this information from their website, but also take advantage of resources such as the advisor’s Form ADV Part 2, FINRA’s BrokerCheck system, and other legally required disclosure statements.
Next, determine how your advisor is paid––commissions, fee-only, or fee-based (a combination of these). If your advisor is compensated through commissions, that means that they’re paid by a third-party product sponsor and may be exposed to conflicting incentives (i.e., your best interest or their bottom line) when recommending products or transactions. Transparency is key. With fee-only or fee-based arrangements, you can often see clearly what you’re paying for in exchange for what you’re receiving. If you can clearly understand how you compensate your advisor, chances are you’re receiving the impartial, product-neutral advice you deserve.
Review how an advisor would manage your money. Ask about their investment philosophy. Does it make sense? Is it a methodical, advice-centric approach that can consistently serve your needs and that of your total wealth, or is it picking products at various times attempting to outguess what the market results will do? There is a difference and its likely core to your success.
Find out where your money will be held - directly at their firm with statements generated internally, or at a fully independent custodian firm? A custodian offers transparency and accountability, not to mention all your necessary account statements and tax documents.
Determine other variables that are important to you such as how easy will it be to work with the advisor? Do they respond to calls, or better yet, will they call you proactively to discuss your financial well-being? How long have they been in business, how experienced are they? What are their core values? Do they use a team to serve you and answer your questions?
“Trust, but verify.” The fiduciary standard is a stringent requirement for financial professionals. Ask if the advisor acts as your fiduciary when providing investment and/or financial advice. Do they put your interests first and disclose any potential conflicts of interests?
For Your Heart – Now it’s time for your gut check. How do they make you feel? Do they respectfully answer your questions, even your candid inquiries, no matter how delicate? Do you feel understood and are you satisfied with their responses? Are they helping you in ways that are better than you expected to help you achieve your financial goals? Remember, it’s not only what an advisor knows, but how comfortable you will be working with the individual and their team over the long haul.
Life’s a journey––navigate it wisely!