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Hiring a Qualified Financial Advisor: 5 Key Traits

Finding financial advisors these days can seem easier than slicing bread. In our technological age a simple Google search will turn up everything from a virtual advisor to a planner in a brick and mortar store. You can cross state lines or settle for the guy down the street. Whomever you choose to work with, there are a few important traits you'll want to make sure your advisor can offer.

1. They Know Their Clients

You may be thinking, “As long as they know finances that is all that matters to me.” However, that couldn’t be further from the truth. Most investment people will likely have no problems when it comes to knowing how to deal with money, but if they don’t know the person’s money they’re working with the relationship could be one sided. You could spend more time frustrated by what your investments are or are not bringing in than having a relaxing evening with your family. (For more, see: How to Select a Financial Advisor.)

When you know somebody, you know their hobbies, their passions, their motivations. I know what drives each and everyone of my clients. If the markets are spiraling on a given day, I know which clients I’ll need to call and reassure. As tax time approaches, I know which clients are going to be worried about their tax bill and need a meeting with their CPA ahead of time. One problem for many advisors is that they’re dealing with hundreds, maybe even thousands of clients. You can’t intimately know someone when you get to that level. So make sure your advisor has a limited clientele and knows you.

2. They Consider Alternatives to Their Recommendations

There’s an old saying, “All roads lead to wrong,” and that’s true. Every decision in the financial world has a positive and a negative. A good planner will sit down with you and let you know their recommendations, the alternatives to those and the reason why they do or don’t believe those are good decisions. I’ve heard of planners that say, “Hey, everyone that comes to me is buying an annuity and that’s just how it is.” Well, that’s not always going to be the right decision for every client. So find someone that doesn’t have a self-serving agenda. That’s why it’s important you know the alternatives and why they will or won’t be the best option.

3. They Know Their Products Or Services

In the financial world you have an array of products. Those range from trusts to business operating agreements to stocks, etc. A good planner knows in detail and does their research when it comes to the product they are handling for you. That’s not to say you won’t have questions that they won’t know. It just means if they don’t have an answer, they work until they can find one. I recently had a client solicit advice on something I’m not familiar with. I responded, “I honestly don’t know. I’ve never been asked that before, but if you’ll give a little time I’ll be able to get you answer.” From there I worked until I could provide my client a response that clued us in on what decision needed to be made to best serve them. (For more, see: Qualifications That Every Financial Advisor Needs.)

So make sure the person you work with knows their stuff and can impart it to you on an elementary level. Working with someone that explains everything on a technical level could leave you clueless if you have no knowledge of the product or service to begin with. Just as with any other trade, those in the financial world speak a jargon all their own. That’s why it’s so important for them to be able to consistently explain things in a way their client can understand.

4. They Will Explore and Explain the Risks

As I pointed out earlier, there are pros and cons to every decision. Risk is not an uncertainty for most decisions. For example, if you’re going to jump out of an airplane without a parachute, you know what’s going to happen. That’s not an uncertainty because you know the outcome. A risk means there could potentially be an up or a down. There could potentially be a negative or a positive and you can quantify the parameters on both sides.

A good planner can sit down with you and say, “If you do this, then here are the pros and cons." Or say, “Here’s your upside and downside within a margin of error.” My job is to make sure my client can make an educated decision based on the evidence I’ve given them.

5. They Will Get Informed Consent

This is different than just consent. Just giving consent can mean you’re blindly following someone, which is never a good recipe and can lead to scamming and deception. What a good advisor will do is get informed consent. That means they’ve basically gone through the previous steps with you and thoroughly explained everything as they’ve walked you through it. You may not fully grasp every detail you’ve been given, however you have a much better knowledge than when you began and you can make a decision based on what you know. Then and only then the planner gets consent to move forward. A good planner will never just ask for blind trust. Anybody that asks that you just depend on their decision-making skills for your finances, likely doesn’t have your best interest at heart. The old saying, “the devil is in the details,” could not be any truer than in this type of situation. There’s a world of danger in what you don’t understand, so never give consent to something you can’t comprehend.

These are the marks of a good planner. If your advisor doesn’t meet these simple standards, then it may be time to look for a new planner. (For more from this author, see: The Differences Between Financial Professionals.)

Disclaimer: Heritage Investors, LLC, 11470 Parkside Dr Suite 201, Knoxville, TN 37934, (865) 690-1155, is registered as an investment adviser with the State of Tennessee. Heritage Investors only transacts business in states where it is properly registered or is excluded or exempted from registration requirements.