What to Watch Out for When Choosing an Advisor
When you’re in the market for a new car, you typically go to the dealership with a list of things you want and don’t want. Maybe you want a hybrid sedan that gets more than thirty miles to the gallon, but you know you don’t want a particular brand. Having a set of guidelines before you go looking can be incredibly helpful in keeping you on track.
With over 300,000 financial advisors across the United States, the process of selecting a dependable advisor can seem overwhelming. Today, I want to talk about some red flags to look out for when looking at advisors, and then we’ll look at some of the more desirable aspects you should seek in a financial guide. Our goal is to help you develop your own set of guidelines for choosing an advisor.
Red Flags to Watch Out for When Choosing an Advisor
1) Their rates are lower than everyone else’s.
I love a good deal as much as the next guy, but when it comes to choosing an advisor, resist the urge to bargain shop. In the world of advisors, you often get what you pay for. That’s not to say that you should look for the most expensive advisor you can find. You should just be aware of what low fees can mean.
An advisor’s rate typically corresponds to the services they provide. As we discussed in our last post, robo-advisors can offer exceptionally low rates because they don’t require much human intervention. If an advisor’s rate isn’t much more than that of a robo-advisor, it’s likely because they don’t do much more for you than a machine would.
2) They don’t listen.
Too many advisors spend the majority of client meetings spouting off about everything they know about the markets and investing. At the end of these meetings, clients leave feeling like they have little to no say in what happens with their financial future.
An advisor who doesn’t ask you questions about yourself and then truly listen is less likely to build a financial plan that is customized to your goals. If an advisor spends too much time talking about his firm and himself, keep looking. The same goes for if, during your second meeting with an advisor, they ask a bunch of the same questions you’ve already answered.
3) They rely on blanket solutions.
Financial advisors who employ a cookie-cutter approach will leave you feeling like a number, not an individual person with a unique set of circumstances. Advisors who offer blanket solutions often resort to mass e-mails and quarterly mailers that offer little value or utility to your personal situation.
4) They’re not a fiduciary.
With the DOL’s delayed implementation of the fiduciary rule until July 2019, advisors currently operate under two standards: suitability and fiduciary. The suitability standard says advisors must give their clients advice that is “suitable” to their needs. As you might imagine, “suitable” leaves a lot of wiggle room for advisors.
On the other hand, advisors who operate under the fiduciary standard are legally required to give advice that is first and foremost in their clients’ best interest. As we’ve said before, it doesn’t guarantee integrity, but it’s a good safeguard to have in place.
So what should you look for in an advisor?
1) They seek to understand your needs.
In my mind, this is of utmost importance when looking for an advisor. The right advisor will ask questions about your situation and help you find solutions that will help you get on the path to achieving your goals. Blanket solutions may work, but there’s usually room to tweak them for individual instances and make them work even better. The right advisor will understand how to fit the solutions to your situation, not the other way around.
2) They’re great listeners.
Listening is an essential part of what an advisor does. Successful advisors are interested in learning about you and your financial background, and then applying that information to your entire financial plan, including your portfolio. If you meet with an advisor who just talks at you the whole time, it’s probably time to look elsewhere.
3) They provide useful, valuable information.
With modern technology, it’s downright inexcusable for advisors to not be in regular contact with their clients. But what about the quality of communications you receive? A lot of advisors will offer a quarterly newsletter, while others will reach out every month or possibly more often.
Ask an advisor to send you their last piece of client communication, read it over, and see if it includes any information you find useful. Are they ultimately talking about the same information you hear from every other news source? Or are they using a bunch of industry jargon that is impossible to read?
4) They work with integrity.
People regularly cite integrity as the most important trait in an advisor. Trusted financial advisors possess the integrity and discipline required to help lead you in a predictable way toward your financial future.
Of course everyone says they operate with integrity, whether it’s true or not. One helpful tool in looking at an advisor’s integrity is FINRA’s BrokerCheck. It’s a great way to start to look at an advisor’s history and see at a quick glance if they have any bad news in their past. An additional source is the SEC’s Investment Advisor Public Disclosure directory.
If you find there’s a disclosure event on either of these sites, this may not be a reason to immediately disqualify them (depending on what it is), but it does empower you with more information to ask that advisor questions about that situation.
5) The Relationship.
All of these points are really pieces of one big, overarching factor: a good relationship.
Beyond technical competency and integrity is the importance of having a relationship that you’re comfortable with. Why is being comfortable so important? When you’re comfortable, you’ll use the advisor more often and get the most out of the relationship. You’ll be more comfortable talking openly about your life.
A good advisor relationship doesn’t feel rushed, judgmental, or condescending. When you ask questions, does the advisor take their time answering them or do they give a short, incomplete answer to get out of the meeting sooner? Are they truly interested in you or just the fee you represent?
The Bottom Line
There are a lot of advisors out there.
Choosing an accomplished financial advisor is key to optimizing your financial health. As you evaluate prospective advisors, be sure to seek attentive, experienced individuals who are eager to listen to your concerns and develop a customized financial plan.
If you want to talk about whether we’re a good fit for you or not, feel free to send us a quick message. We’d be happy to learn more about you!