You can’t play an effective doubles game with any old tennis player. Or win a beach volleyball match with a partner you don’t trust. In the same way, it’s easier and more fun to win the wealth game when you’re partnered with a financial advisor who’s compatible with you and your situation.
Compatibility in this context is multidimensional. The right financial advisor is trustworthy, experienced, easy to talk to, reliable, and — importantly — effective with other clients like you.
Many advisors won’t check all those boxes. And the risks of choosing the wrong advisor are high. For one, it’ll take longer to reach your financial goals. You’ll also have to redo your advisor search and, possibly, go through a messy advisor breakup.
The right financial advisor is trustworthy, experienced, easy to talk to, reliable, and — importantly — effective with other clients like you.
Fortunately, you can set yourself up to pick the right advisor, the first time. There is some legwork involved: defining what you want, learning the basics of the advisor landscape, and interviewing multiple candidates.
Here is a six-step process that’ll help you find and choose a compatible financial advisor.
What do you hope to gain from retaining a financial advisor? Your first answer usually describes your top-priority financial goal. You might say, for example, that you want to increase your net worth, plan for retirement, pay down debt, manage your tax bill, or plan for your legacy.
Whatever your goal is, you can translate it into the services and financial advice you’d want your advisor to provide. For example:
Consider ranking the various financial services you need from highest to lowest priority. That’ll help you ask the right questions when it’s time to interview your advisor candidates.
An advisor’s personality and communication style is as important as his or her resume. After all, if you don’t feel comfortable interacting with your advisor, the relationship won’t be productive.
Start by jotting down personality traits you like and don’t like. Think back to past collaborative situations — things like work meetings, school projects, or home or car sale negotiations. Do you prefer working with quiet, intellectual types or bold, take-charge personalities? Would you rather work with someone who’s very technical or someone who speaks in layman’s terms?
Also think about balancing your own personality. If you are strong and direct, for example, you may get more value from an advisor who’s equally assertive. If you are more passive, you might do better with an advisor who’s warm and personable — so you feel comfortable sharing your opinions.
Some advisors may have limited availability for in-office, in-person meetings.
In this pandemic era, meeting format is another compatibility consideration. If you prefer face-to-face meetings over Zoom and phone calls, that’s a topic to discuss in interviews. Some advisors may have limited availability for in-office, in-person meetings.
To get the most from your advisor interviews, you’ll need some background information on how financial professionals work. Specifically, you should know about the credentials advisors can carry, the standards of conduct that apply to advisors, and how advisors get paid.
Financial advisors can carry several credentials. The credentials tell you generally what type of training and experience that advisor has. For example:
Certified financial planners and chartered financial consultants are more likely to provide comprehensive financial planning support, from budgeting to investing. Stockbrokers, on the other hand, are primarily investment advisers.
Regulatory and licensing agencies require financial advisors to act ethically, objectively, and competently with their clients. To that end, the agencies hold advisors to defined standards of conduct.
Certified financial planners, chartered financial consultants, and investment advisor representatives are held to the fiduciary standard. Stockbrokers follow the best interest standard.
Under fiduciary standards, advisors are obligated to prioritize a client’s needs above their personal needs and the needs of the firm they represent. They also must avoid conflicts of interest or disclose conflicts of interest that are not avoidable.
In practice, this means a fiduciary shouldn’t recommend a commission-generating product to the client. If that recommendation is made, the fiduciary must be transparent with the client about the potential commission.
The best interest standard is similar, but critics say it doesn’t go as far as the fiduciary standard. Stockbrokers held to this standard must only make financial recommendations that are in the clients’ best interests. They are expressly prohibited from putting their own needs first.
In practice, this means stockbrokers can recommend commission-generating products — but that recommendation must align with the client’s highest interests and be made with reasonable diligence and care. The stockbroker must also disclose the commissions arrangements for those recommendations.
Financial advisors can charge fees, earn commissions from the financial products they sell, or both. There are pros and cons to each of these structures.
Deciding your fee structure preference before you begin interviewing helps you narrow the field of acceptable advisor candidates.
Once you have a sense of what you want in terms of services, personality, credentials, conduct, and fees, you can dive into the advisor search. You might jump right into a Google search, but that will likely yield an unmanageable list of names.
To save time, ask friends and family members for referrals and search through screened advisor directories.
Close friends and family members are often great sources for referrals. You can also reach out to your broader circle of contacts via social media. Just know that the most suitable referrals will come from people who are like you in terms of financial status and goals.
You can also use screened advisory directories to find financial professionals who meet certain criteria. Two examples are:
You can also use screened advisory directories to find financial professionals who meet certain criteria.
Referrals and directories should provide you with a handful of financial advisor candidates. Plan on interviewing at least three of them so you can compare their answers and their overall value propositions.
Ahead of these interviews, write down your questions. Topics to consider are:
You can also ask each advisor candidate for references. Push for names of clients who are like you — those who are of a similar age and have similar goals. This group will provide more relevant feedback than, say, the advisor’s professional colleagues.
Know that your prospective advisors will have screening questions for you, too. They’ll likely ask to you to describe your financial life, including your net worth, your risk tolerance, your goals, and the obstacles you face in reaching those goals.
Take notes during these interviews or record them with the advisor’s permission. After each meeting, spend a few minutes assessing your rapport with the advisor.
In 2015, CNBC reported that 2% of financial advisors have criminal charges on their record. Those charges range from investment-related misdemeanors to felony convictions. You probably don’t want a felon directing your wealth strategy. So, it’s important to do background checks — especially for advisors that haven’t already been screened for you.
To verify your advisor’s reputation, you can:
BrokerCheck and the Investment Advisor Public Disclosure website should list any client complaints, regulatory actions, employer terminations, bankruptcies, and civil or criminal judgments associated with that advisor.
Your final step is the one that counts: Choose the advisor who’s the best fit. The right choice will be someone who’s personable and has deep experience guiding clients like you to improved financial strength.
Remember that you’re choosing a partner to help you win the wealth game — both skills and attitude matter.
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