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Making Notes

Suggestions on How to Choose a Financial Advisor

by Rachna Bijlani, CFP®

December 20, 2019

 

I recently caught the movie ‘Hustlers’ on a plane ride back from New Orleans this month. The movie told the tale of a bunch of entrepreneurial women who had no qualms about conning the notorious and wealthy Wall Street brokers because, in their opinion, these guys were con artists and hustlers themselves. The movie got me thinking about how financial professionals sometimes carry a bad reputation and whether that was justified. Without being judgmental, it is fair to say that there are good and bad people in every profession. That being said, there are certain parameters that you, as a client, should consider before working with a financial advisor, to increase your odds of having a positive experience. So, if getting your financial life in order and working towards your financial goals is on your to-do list for 2020, here are some suggestions on how to choose a financial advisor:

Fiduciary - A Financial Advisor held to fiduciary standards is required to act in the client’s best interest, at all times, above all else, when providing financial advice to the client. Not all advisors operate at a fiduciary level, some only fulfill the suitability obligation.  This means that while their recommendations need to be suitable for the client, they don’t necessarily have to be the best option for their clients. Working with an advisor who is legally obligated to work in a fiduciary capacity increases your odds of receiving financial advice that best fits your objectives. Registered Investment Advisory firms (RIAs) and CFP® professionals who provide financial planning services are held to the duty of care of a fiduciary.

 

Competence - From brokers, insurance salesmen to the teller in your bank, anyone can call themselves a Financial Advisor and all of these professionals have their own areas of expertise. However, if you’re looking for someone who can offer holistic financial advice driven by your individual financial goals, it might make sense to work with a CERTIFIED FINANCIAL PLANNER™. To earn the CFP® designation, planners must hold at least a bachelor’s degree, take extensive specialized coursework ranging from topics like Investment Planning, Retirement Planning, Income Tax Planning, Insurance Planning, Education Planning and Estate Planning; pass a rigorous exam which has a low Pass Rate, and accrue three years of relevant experience. Every two years, certificants must complete at least 30 hours of continuing education. Working with someone who is held to strict ethical and professional standards and has put in the time and effort to gain expertise in their field of service is definitely a positive start.

 

Compensation - Financial Advisory firms can offer all kinds of services such as comprehensive Financial Planning, Asset Management and Tax Preparation and Filing, amongst others.  Advisors can be compensated in several ways such as fees, commissions or a combination of both. Anytime you work with an advisor, make sure that you clearly understand the scope of the service being provided to you and how the advisor will be compensated for that service. Flat fees for services like financial planning or hourly advice or asset management fees based on the size of the assets are generally easier for the client to track and understand and possibly also put the advisor in a better position to offer unbiased and conflict-free advice relative to commission-based compensation. An advisor who charges you a periodic investment management fee based on the size of your assets ascertains that both his and your interests are aligned versus someone who sells you a product and earns a commission. However, we cannot dismiss the fact that in certain cases and scenarios, a commission based product might be the optimum choice for the client. Your advisor should go over all associated expenses and fees with you with total clarity and transparency before any transaction. It might also be a good idea to check that your advisor has no incentive to pitch specific financial products or is not under the pressure of meeting certain sales or revenue targets.

 

Accessibility - If you’re looking for a human financial advisor who can offer comprehensive financial planning advice, it is important that you find someone who takes the time to get to know you and understands your goals and priorities and your unique financial situation. Talk to your friends, family and colleagues to get recommendations. An initial meeting or an introductory call with an advisor can help you assess their approach and give you an idea about how they conduct their practice. Your advisor should understand and address your concerns promptly and should be easily accessible. This person should always be honest and realistic with you about your financial situation, irrespective of what that might look like. It is also your advisor's job to objectively steer you away from making poor financial decisions and rationally guide you during high stress times like economic downturns. Your advisor should meet with you once a year and offer to review your portfolio performance with you every quarter. You and your financial advisor should work together as a team whose focus is to help you achieve your financial goals. Often, working with a financial advisor who serves a moderate number of clients can ensure that you get a more personal approach towards your financial planning goals. On a lighter note, these lyrics from One Republic’s song “Rescue Me” sum up the expectations that you should have of your Financial Advisor:

Would you rescue me? Would you get my back?
Would you take my call when I start to crack?
Would you rescue me?

 

If you’re going to share your financial goals, hopes and dreams with someone and trust them with your hard-earned assets, make sure that you have done your due diligence in finding the right person for the job. This is possibly going to be a long-standing relationship so do your homework and finally, trust your instinct.

To schedule a complimentary 30 minute initial consultation, email me at rachna@br2financialplanning.com.

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