Even though research shows that people with financial advisors are usually better prepared for retirement and more at ease with their financial wellness, selecting the right financial advisor is no easy decision. This decision isn’t just financial. This is a personal choice where you are forging a partnership with a professional whom you have selected to help you achieve your goals, whether they are providing for your family after you’re gone or funding a luxe retirement lifestyle.
Harold P. Weinstein, Director of Organizational and Talent Development at Wescott Financial Advisory Group LLC, likens deciding on a financial advisor to choosing a doctor.
“Managing wealth is a lot like managing health,” Weinstein says. “You need to be able to share personal information and have honest conversations about your lifestyle, goals and priorities. Doctors talk a lot about ‘bedside manner,’ and it’s just as important to look for financial advisors with those same interpersonal skills.”
At the same time, you want someone with professional experience, knowledge and expertise. Finding the individual who balances that personal connection with deep-seated expertise is the true challenge when choosing a financial advisor – or physician. Here’s a closer look at four factors to consider when selecting your financial advisor.
1. Ask about their certifications
You wouldn’t let someone without a medical degree advise you on matters of your health. Likewise, you shouldn’t choose a financial advisor without the proper industry certifications and credentials.
First and foremost, the advisor should have a Certified Financial Planner (CFP) designation. This designation represents that the advisor has at least a few years of professional experience under their belts and is able to look at your portfolio holistically, considering factors like estate and tax planning. CFPs are committed to follow strict ethical guidelines, and registered investment advisors (RIAs) with their CFP have a fiduciary duty to clients, which means they’re committed to acting in your best interest.
“Checking a potential advisor’s certifications goes beyond looking at the alphabet soup after their name,” Weinstein says. “Potential clients should check the state of those certifications via the SEC’s Investment Advisor Public Disclosure website, which will list any complaints or actions against individual advisors or firms.”
For advisors and firms managing investment assets directly, the Chartered Financial Analyst designation is the gold standard of investment management. If the firm has a CFA at the helm to handle money management and investment analysis, the advisor will be better able to answer your questions about your portfolio and invested assets. It’s also important to ask about other areas of expertise the advisor, may have. These include accounting designations (Certified Public Accountant or CPA), tax law expertise (Master of Law or LL.M. designation) and other legal degrees such as a Juris Doctor (JD).
Katelyn Friel, Manager of Marketing & Communications at Wescott, emphasizes it’s important to look beyond your specific advisor and ask about certifications and capabilities firmwide.
“No single advisor will have all of these specialties and certifications,” Friel says. “Ultimately, you’re looking for an advisor certified to handle your most pressing needs who can refer you to other experts within their practice, or firm, should the case arise – just like a physician.”
2. Ask about their typical client profile
As an adult, you wouldn’t use a pediatrician as your primary care doctor. Similarly, you shouldn’t choose an advisor who doesn’t specialize in working with clients who have comparable financial and personal goals and needs.
Different advisors target clients based on a range of factors. Often, the most important factor to consider is the amount of wealth they typically manage for clients. Your advisor should have a deep understanding of how to handle your level of assets.
“The best way to determine if an advisor is a good fit is to ask them to describe their typical client,” Friel says. “No two clients are exactly alike; their focus should match your financial profile and priorities.”
3. Ask about their overall approach
Just like you wouldn’t want a doctor who doesn’t consider your overall health while treating a specific ailment, you shouldn’t choose an advisor who has tunnel-vision when it comes to your assets.
Your net-worth is a means to an end. It’s what enables you, and your family, to live a comfortable life, while continuing to reach your goals. A financial advisor should utilize this life-based approach and be able to react and adjust to the curveballs life throws your way.
“This is where bedside manner is so important,” Weinstein says. “An advisor should understand your family dynamic, your retirement goals, what you plan to do with your money after you die and a host of other personal details. The more they know, the better they can target their advice.”
To get a glimpse of what this relationship may look like, clients should ask specific questions about the advisor’s approach to financial planning. Ask about how you’ll communicate with the advisor, how often you’ll meet, what is covered in those meetings, how long typical clients talk about different subjects, etc.
“A lot of firms say they are focused on client goals, but don’t necessarily follow-through with this promise,” Friel says. “Dig deeper than the sales pitch by asking to see real, tangible examples of how they interact and work with clients.”
4. Ask about their fee structure
You wouldn’t choose a doctor without knowing how much a visit or procedure will cost. You shouldn’t choose an advisor who isn’t upfront about their payment structure.
“Advisors make money in different ways. Some do it through commissions, others from fees and still others through a combination of the two,” Weinstein says. “Commission-based advisors make money by placing assets in specific funds or investments vehicles. Sometimes these advisors achieve great performance and consistently act in the client’s best interest. But there’s a built-in conflict between the choices they make with your money and their paycheck.”
Fee-based advisors, by definition, are purely aligned with their clients’ interest. They receive compensation based on the assets they manage. As those assets grow, so does their payment with no hidden fees or charges. It’s important to note, however, that this fee encompasses more than just portfolio management. It also covers the planning, advice and insights that are so important to the client-advisor relationship.
Weinstein suggests directly asking the advisor how he or she charges for services. Potential clients should then go one step further and check the SEC’s website for the advisor or firm’s Form ADV. In this two-part form, firms disclose details of their fee-structure and payment methods and also provide a brochure clearly illustrating how the firm operates and generates revenue.
Finding an advisor for your life
Selecting a financial advisor, like a physician, is a deeply personal decision. While their credentials and experience are important, choosing someone you can trust and develop a relationship with is even more crucial.
You want an advisor you can grow old with, someone who can adjust their approach as your life goals change. Just as you wouldn’t choose a physician to manage your health without considering these factors, you shouldn’t choose a financial advisor to manage your wealth without considering them, either.
To learn more about our financial advisors and our approach, contact us today.