Whether you're beginning to plan for your financial future—or have found yourself smack dab into making significant decisions that you didn’t anticipate—at some point you’ll need to consult with a financial advisor. However, it can be difficult to always know who the best person is to trust your finances to.
Choosing a financial advisor goes beyond working with someone who has the backing of a large brokerage firm or an impressive list of credentials behind their name. When you look around, there are a lot of alphabet-soup designations out there. Anyone can call themselves a financial advisor, but that doesn’t necessarily mean that they are highly qualified to advise you.
What to Look for in an Advisor
Professional credentials do not tell you everything you need to know about an advisor. You should also look at an advisor’s experience, investment style, and type of clientele. Use the following questions to help you in evaluating an advisor.
- What are your qualifications? Advisors must be registered with the Securities and Exchange Commission (SEC) or Financial Industry Regulatory Authority (FINRA) in order to provide investment advice. It’s important to understand the two standards of care that advisors are held to by each. The fiduciary standard requires that an adviser put the clients’ interest first and is enforced by the SEC, while the suitability standard is enforced by FINRA and requires that a broker make recommendations that are suitable based on a client’s personal situation. You should also do your due diligence to find out if a potential advisor has ever been investigated or found guilty of an infraction.
- How does your firm operate? No great advisor goes at it alone so discover all you can about the team behind the principal advisor. The mix of the team speaks volumes about the firm. Ask what licenses, certifications and/or credentials members of the team have. For example, many top advisory firms will have a Certified Financial Planner (CFP) and a Chartered Financial Analyst (CFA) on their team. Go deep and investigate other members on their team as stated in the above. Ask what role they play and how this will benefit you.
- What services do you provide? Some advisors only offer investment planning, while others take a whole life approach. As an example, Certified Financial Planners (CFP) have a process that looks at your overall goals and creates a written plan that addresses the wealth gaps to get you where you want to go.
- What does a financial plan look like? Of course every plan is different and should be tailored to the individual investor. However, ask to look at a sample portfolio or investment plan. Find out how the advisor approaches the planning process and communicates with clients. Ask if or why you need a plan, you may not depending on your needs. Also be sure to ask for client references—and then check them.
- What is your investment approach and how do you choose investments? It’s important that advisors have a process of how investments are chosen and deployed in an asset allocation. Your advisor should be able to explain how and why a particular investment is chosen. Discover their buy, sell and rebalance disciplines. It’s easy to buy investments, it’s the discipline of when and why to sell that are keys to better performance.
- What is your communication style? Some clients are very financially savvy while others appreciate a bit of hand-holding and education. Will your advisor and his or her team take the time to thoroughly explain the markets, the investing rationale—and any other questions that you may have? At times of market stress, how does the advisor communicate?
- How are you compensated? Some advisors are strictly fee-based, while others earn their living by commission or from selling an investment product. Ask if there are any conflicts of interest which would motivate the advisor to do something that’s not in your best interest. Be sure all fees are disclosed and if you’re unsure about something—ask!
- What makes the investment team unique? We ask these questions when we buy a car, hire a contractor, or work with a personal trainer. An investment advisor should be no different. Ask them how they define a successful relationship. If your advisor can’t explain in clear language why they are different and how you will benefit from becoming a client, move on.
Know When It’s Time to Change Advisors
You may have been with an advisor for many years and have not been particularly satisfied. But sometimes it seems easier to stay with them because change can be just as difficult. Stop and take a minute to see if any of these points apply:
- Lack of communication: A good advisor is always available for clients—by phone, email or appointments. If your advisor isn’t keeping you in the loop, it’s time to look for someone else.
- Pushing products instead of giving advice. One size does not fit all. Your financial plan should be tailored to your specific goals. Avoid advisors who recommend cookie-cutter products or plans.
- Not being proactive—or reactive. A year or two of lackluster performance isn’t cause for alarm. Those are things that an advisor cannot completely control. However, if your performance returns continue to be out of line with your risk tolerance or goals, be sure to discuss re-vamping your investment strategy. And, if you come away feeling that your advisor isn’t listening, consider making a change.
At JJ Burns & Company, we believe a good advisor is truly your partner in your long-term financial success. Talk to us about how we can help you reach your goals.