According to a Harris Poll survey from 2016, 62% of Americans do not have a financial advisor of any kind and 68% feel that they do not have a trusted advisor who offers the lifetime financial planning they need. With more than half of Americans not knowing where to turn for financial advice and support it’s critical that when you are choosing an advisor, it’s someone who you can rely on for financial security.
Determining who to trust to guide you through major financial decisions is one of the most important choices you can make. It’s not about choosing a financial advisor who looks perfect on paper. Instead it’s about choosing an advisor who will tailor their approach based on your specific goals and needs. It is also important to try and consolidate all of your financial advising needs into one integrated advisor, as having multiple advisors may deviate from your financial goals.
Whether you’re seeking long-term financial planning for the first time or simply shopping around for a new advisor, you should always do your due diligence and research both the advisor and their firm. Consider these tips below when choosing a financial partner. (For more, see: 5 Traits the Best Financial Advisors Share.)
1. Firm Considerations
One question to always consider is whether a firm is incentivized to push proprietary products with higher fees. If so, are there valid reasons for choosing a team that offers more expensive financial products and services?
Research often begins by examining the company itself. While there may be qualified (or not so qualified) financial advisors at every firm, some companies tend to provide a wider range of services or have more ethical business practices than others. Begin your research by finding the answers to the following questions:
- Does the business employ actual financial advisors or are the employees accountants, insurance agents or brokers who are looking to sell a particular product?
- What is the company’s fee structure for services? How do they get paid?
- What is their general investment philosophy and approach?
- How accessible will your account holdings and performance information be?
- What would happen if something happened to your advisor? Do you trust that you will be taken care of by their firm?
Make sure that both the advisor and the firm you choose can provide the highest level of service and support while growing your financial plan in a mutually beneficial way. (For more, see: Understanding the Fees Charged by Financial Advisors.)
2. Fiduciary Considerations
According to a 2017 study by GuideVine, only 49% of Americans think that financial advisors are trustworthy. It’s important to remember that most financial advisors have a fiduciary duty to clients, meaning they have a legal obligation to provide responsible advice. One way to measure that duty is by determining if their firm upholds the fiduciary standard. While conducting research, important questions to ask include:
- Is the advisor a true fiduciary or not?
- Notice how the advisor answers. If they say they are a true fiduciary, ask them to show you in writing.
- What is their experience?
- What licenses and credentials do they have?
- Are they being transparent about all fees?
- Do they receive any compensation in addition to what you are paying them?
- Are they “dual-registered” as both an investment advisor and broker-dealer?
- Have they ever been cited by a professional or regulatory body for disciplinary reasons?
3. Personal Considerations
Above all, as a client, you should have a strong level of comfort and trust with the individual and firm you select to handle your financial well-being and future. According to the aforementioned Harris Poll online survey, only 40% of Americans who currently have a financial advisor said that their advisor had a long-term commitment and provided tailored attention.
Comprehensive financial planning and asset management goes beyond a one size fits all approach. Make a list of important traits and qualities that you value and ask yourself:
- What should your relationship with your financial advisor look like?
- What is their client service philosophy?
- What is their communication style?
- How often will you hear from them?
- How many other clients do they work with?
Make sure the financial advisor you select treats you with the same attention and professionalism reserved for all clients, regardless of assets.
While planning for your financial future, selecting a financial advisor requires multi-faceted and thorough research. Remember that your financial advisor should always serve your best interest and that should be reflected in the company’s practices, fiduciary responsibilities and personal connectivity. Choosing between different candidates and firms can be a tough decision, but its significance cannot be understated since it is a choice that will impact the rest of your life. (For related reading, see: Can You Afford a Financial Advisor?)