Thanks to steady technological advances, financial advisers now come in all different shapes and sizes. Gone is the stereotypical besuited man behind a mahogany desk. Now the options range from faceless “robo-advisers” to your friendly neighborhood independent adviser, and everything in between.
Despite this smorgasbord of choices, it can still be hard for people to figure out what, if anything, their adviser does that’s better than the alternative. There are the obvious market benchmarks that can be used as a measuring stick, but beyond the cold financial figures lies the most important question: How do you know if your adviser is doing a proper job, and is he or she the right fit for you and your family?
There’s no one right answer for everyone. But there are seven key traits that every client should look for when evaluating their adviser.
Trait No. 1: Holistic thinking.
When people think of financial advice, they usually first think stocks and bonds or the right portfolio mix. However, a good financial adviser should be giving you a much broader suite of advice. He or she should be helping you assess the right kinds of insurance policies, whether your investments are tax efficient, and whether your strategy is aligned with your goals, be that retirement or paying for the kids’ college. On a practical level, a good adviser should be able to consult and trade for you on your full range of investments, including 401(k)s. If you want holistic advice, you need someone who’s empowered to work holistically.
Trait No. 2: Easily established trust.
Giving a single person the key to your financial kingdom requires that you trust them to be good stewards. You must find an adviser with whom you feel a connection. After all, you will be sharing some of your most intimate family dreams and worries. The adviser needs to understand who you are on an emotional, as well as financial level, in order to guide you to the best strategies. Beyond your gut feeling, of course, make sure that the person is a certified fiduciary with a legal obligation to put your interest ahead of their own.
Trait No. 3: Transparent pricing.
Do you know how your financial adviser makes his or her money? Some advisers may tell you they don’t charge any fees, but that doesn’t mean they’re working for free. They are likely being compensated by taking a chunky commission from the funds you buy through them. Others only charge a percentage of your investment asset value, giving them more of a vested interest in your success. There can be add-on fees and other charges hidden in the small print. Different fee structures will suit different situations, but the important thing is to expect total transparency on fees from your adviser and to make sure you fully understand them.
Trait No. 4: Proactive advice.
If you find the onus is on you to email your adviser with ideas about new investment strategies or reactions to market changes, then he or she probably isn’t doing a great job. Those ideas should originate with the adviser, and not the other way around. Good advisers should regularly be updating their clients on topics such as shifts in the investment outlook, any changes to their portfolio make-up, rebalancing opportunities and tax-saving ideas. Despite the fact that your relationship with your adviser should feel like a personal one, rather than merely transactional, the person getting paid should be doing the bulk of the work.
Trait No. 5: Responsiveness.
Advisers should also be fast on their feet to react to any sudden changes in their clients’ plans. A modern adviser should be able to quickly plug in and analyze the impact of your new plan to, for example, spend $50,000 on private school for your kids, or the purchase of a second home. They should also be checking in with you for an annual review to assess any changes in your risk tolerance that may result from life changes.
Trait No. 6: An emphasis on people, not products.
This one comes back to the human connection. If any adviser starts off a relationship by talking to you about financial products and investment vehicles, be wary. A good adviser will first engage you in a thorough discussion about your overall background, goals and concerns. Discussing investment vehicles is important, but the discussion must come after your adviser has established your trust and understands your personal and financial situation.
Trait No. 7: The ability to say ‘no.’
Having an adviser who always agrees with your ideas and plans may stroke your ego, but it can make for terrible financial planning. The adviser is there for a reason — to give you honest advice based on his or her knowledge and experience and ensure your long-term financial independence. Sometimes that will mean disagreeing with your plans and backing up that view with well-founded advice, thoughtful considerations and questions, and an updated financial plan.
Financial planning is far from a one-size-fits-all service. A style or strategy that works for one client may be totally off the mark for another.Still, every financial adviser should be able to provide the seven elements listed above. If yours doesn’t, it may be time to switch.
Jaime Eckels, CFP, has been helping clients achieve their financial goals for 20 years and specializes in developing savings behaviors, implementing debt-reduction strategies, analyzing client cash flows, defining investment policy, determining portfolio allocations, minimizing income taxes and maximizing client balance sheets.
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