What to look for in financial advisors

I have found that many investors are looking to change their financial advisors. It has been said that client loyalty is a dying trait and investors are no longer looking for reasons to make a change but rather they are looking for reasons to stay with their current advisors.

The fact is your financial advisor is getting paid to help you make good financial and investment decisions. Many investors are questioning the credibility and ability of their advisors. Are these investors justified in thinking this way? Or is the reality that everyone is in the same boat and just looking for excuses to make changes.

I guess the only way to determine if your financial advisors are worth their compensation is to look at a number of criteria. In this article, I offer you some thoughts on what to look for in your financial advisor.

  1. Education. The education of an advisor is an absolutely crucial criterion to determine competence. A good education is often measured by designations. Letters behind the name of an advisor show you that these people have some level of dedication, discipline, and commitment to the industry and their profession. The unfortunate part is there are some advisors that have much of the theoretical knowledge or what I call book knowledge but they do not have the practical experience and ability to translate theory into reality. While education is important, make sure you ask your advisor or potential advisors what they are doing to keep up their educational requirements. If your advisor is keeping up, they should be able to answer this question pretty easily.
  2. Experience. As I stated earlier, having an education is part of the equation. An advisor with experience often really understands the practical application of theory to reality. There is an old saying in the investment industry if you make it past three years, then you will last a lifetime. Unfortunately, many financial advisors do not make it past the first three years in this business.
  3. Independence. There are some financial advisors that work for large financial institutions and will promote and sell those financial institutions’ products. Other advisors have more independence and will promote and sell the products of many financial institutions. The only thing you need to ask is, who does your financial advisor work for? Do they work for you or do they work for a financial institution? This is my personal bias, but an advisor that only sells one brand or one company’s product is more likely to have a conflict of interest. Are they selling products in the interest of the financial institution they work for or is it in your best interest?
  4. Big picture thinking. Some financial advisors are really glorified salespeople trying to peddle the latest product. How can you blame them, it is how they make a living. After all, any business is about selling products or services to people who need them. However, in the financial business, there are many financial advisors who provide a lot more than just products. They provide advice behind the products. Investors may find value-added when they get good financial, tax, estate or retirement advice beyond just picking an investment. In fact, good advice in these areas is worth a lot more than you think. Take the time to think about whether your financial advisor has helped you save money in taxes, reduce your interest on the debt, manage your cash flow, increase your income, etc.
  5. Communication. Every relationship whether it is a marriage, friendship or a client-advisor relationship requires communication. Lack of communication is where many investors feel neglected. How does your financial advisor communicate with you? Do they send out newsletters? Do they call you from time to time? Do they send you reminders for review? Do they hold seminars? These are just some of the different forms of communication. If an advisor values your business, they should be communicating with you in some way shape or form? I always suggest that you talk to your advisor about your expectations for communication. Often it is expectations or perceptions that create communication problems.

This list may not be exhaustive. They do provide a basic guideline for some of the things to consider if you are either looking for a new financial advisor or looking to fire your existing advisor. The bottom line is that good a financial advisor should have the time, expertise, knowledge, resources and tools to properly give advice and manage money. A good advisor will provide value to your financial picture. For me, it all boils down to two basic things: 1. Do you trust this person with your financial affairs? 2. Does this person demonstrate some acceptable level of competence?


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