We've all heard horror stories from people who hire an A+ salesman but a D- financial advisor. That's what happens when you don't know what to look for.
Skip the pain of hiring the wrong advisor and get it right the first time with these 10 tips.
Have a Strategy Before Meeting a Financial Advisor
Before you book an intro meeting, research the advisor and learn everything you can about what they do, their process for doing it, what they charge, etc.
This will help you avoid an unwanted sales pitch by only meeting with advisors who fit your criteria.
Know What You're Looking For
Are you looking for someone who can offer practical advice on how to reach your financial goals? Have any of the questions in the graphic below crossed your mind?
If not, you're probably not looking for an advisor. You're looking for another professional for a specific need, like a CPA.
Understanding the issue you want to solve will save you time and prevent the potential of being sold something you don't really need.
Evaluate Rapport and Their Offering
In the first meeting, don't ask questions like, Should I contribute to a Roth or Traditional IRA? A quality advisor won't have an immediate answer because they don't know anything about your situation yet.
Learn more about their offering and how they help clients to see if it matches your needs. Determine if you have a rapport and feel like you wouldn't dread meeting with them.
Otherwise, you'll leave the meeting without a clear understanding of what they actually do or whether you'd benefit from an advisory relationship.
Use these questions to leave the meeting feeling confident about whether they're a fit or not.
What's your process for working with new clients?
Look for an advisor who conducts meticulous data gathering over several meetings to fully understand your situation, values, and goals before delivering a plan.
There's value in efficiency, but cutting corners and skipping a comprehensive data-gathering process is bound to leave you with mediocre or flat-out wrong recommendations.
The initial data-gathering, presentation, and implementation of a full financial plan typically takes anywhere from 4-8 meetings in the first year. Then, you move to a regular meeting cadence.
Once onboarded, how many times will we meet per year?
I look for a minimum of two scheduled meetings per year to review and update your financial plan. However, there should be plenty of communication in between.
Ensure that you have access to email, phone calls, and off-the-cuff meetings (within reason) as needed to address your questions and life changes.
Your financial advisor is there to answer your questions and guide you through the financial ramifications of life events. You should never feel like you're being a burden when you contact them.
What services will you provide on an annual basis?
Nearly everyone says they offer “comprehensive financial planning” because there's so much value in it. You'll have to dig deeper to determine the quality.
Remember, a Monte Carlo analysis is NOT financial planning. Neither is a hundred page binder full of charts and graphs.
A great advisor is like a watchdog over your financial plan. You want someone who annually reviews your plan and provides specific recommendations on cash flow/retirement, taxes, investments, insurance, estate, and any area specific to your situation.
Do you have a speciality? If yes, what is it?
You want an advisor who regularly addresses and has experience with the issues you need solved.
Executives with equity compensation have much different needs than doctors, lawyers, and business owners, and vice versa.
Ask how they've helped clients with a situation similar to yours. For example, if you're a business executive:
Do they have experience creating employee stock option exercise strategies?
Do they know how to evaluate AMT consequences for Incentive Stock Options?
If you don't feel like your situation has a specific nuance, think about your most pressing questions and ask them if they've answered those questions for other clients.
How are you paid?
I'm sure you saw this coming since no list would be complete without it.
Transparency is key here. You want a plain English answer free from financial jargon.
There are tons of advisor business models and compensation structures. I tried my best to decipher them as simply as possible in my post How to Compare Financial Advisors.
No matter what, make sure you understand exactly how and what you'll pay before you sign a client agreement.
What factors do you consider to help determine my portfolio allocation?
Plugging you into a model portfolio based on your age and a risk tolerance questionnaire is an easy way to know that they aren't giving this decision the thought it requires.
I use Larry Swedroe's framework of determining the client's:
Then, tailor the allocation to their timeline for using funds, tax situation, and other variables in their financial plan.
There are other ways to do it, but I believe it's important to make the portfolio decision collaborative.
What's your investment philosophy and approach to portfolio construction?
You want to align with your advisor’s philosophy to create a portfolio you’ll stick to when volatility spikes.
Some people want an advisor who picks individual stocks and tries to outperform the S&P 500, every year. Some people want an asset allocation that limits volatility and lets them sleep at night while still providing enough growth to achieve their goals.
Historically, the latter has been the more successful approach (S&P SPIVA Data). However, you should work with the advisor who you most align with.
Remember that prioritizing low costs and tax efficiency is more important than having access to proprietary funds.
What are your qualifications and experience?
Don't be blinded by credentials masquerading as qualifications. Some of the brightest people I know don’t have industry credentials.
Many credentials require extensive studying and time spent mastering financial concepts. They deserve recognition, but experience in real life situations is more valuable than theory studied in a vacuum.
Ask about their background and time in the industry to get a feel for their experience level.
Do you have a fiduciary duty to me at all times?
Recent laws require all financial advisors to act in clients' best interests when giving investment advice.
However, someone who has a fiduciary duty at all times is required to make every recommendation in your best interest.
At the very least, you can gauge their reaction to the question and hold them to the standard they promised throughout your relationship.
Bonus
Perform due diligence and check for any disciplinary history before meeting with an advisor by searching for them on the SEC's Investment Advisor Public Disclosure (IAPD) page or FINRA’s BrokerCheck tool.
Conclusion
The quality of your financial advisor has a material impact on the likelihood of achieving your financial goals.
A great advisor is worth their weight in gold. A mediocre or poor advisor can actually detract from your wealth and quality of life.
Use these 10 tips to find the right advisor the first time.
Disclaimer
Unrivaled Wealth Management (“UWM”) is a registered investment advisor offering advisory services in the States of Ohio, Pennsylvania, and in other jurisdictions where exempted. Registration does not imply a certain level of skill or training.
This communication is for informational purposes only and is not intended as tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. This communication should not be relied upon as the sole factor in an investment making decision.
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