Searching for the right financial advisor isn’t easy. Urban living has its hurdles as a google search can provide an overwhelming amount of options and the personal connection typically isn’t present. In rural areas, there are few options and sometimes the quality of advisor doesn’t exist. So, where do you start?
We see investors decide to start working with a financial advisor at various ages based on their individual circumstances. Often a new job, an inheritance, life events such as marriage or divorce, preparation for retirement and education funding are the catalyst to search for an investment advisor.
The first and most common way to seek out investment advice is through word of mouth. Talking to friends and family regarding their relationship with their financial advisor can be very insightful. More than likely, they’ll be candid both about the positive and negative experience they may have had. If you lean on someone you trust to give you a reference to their financial advisor, be sure they’re not recommending them based off of investment returns, as they can be fleeting, or the recommendation of a “hot stock”. Investment returns alone will not shed light on the potential risk you may be taking on to achieve those gains.
Most investors who do their homework online look for an advisor held to a fiduciary standard - simply meaning someone who does not sell investment products, but rather advises on a fee-only basis and has a legal responsibility to put your needs in front of their own. Fiduciary advisors tend to provide more comprehensive financial advice - considering things such as estate planning (wills, trusts & beneficiaries), retirement planning, investing, taxes, education funding, life insurance and charitable giving when guiding you.
Understanding how your perspective advisor gets compensated is also important. Traditionally, brokers, insurance agents and registered representatives sell financial products such as mutual funds, annuities and insurance and receive commissions on those products. Because part or in some cases all of what they are paid is based on the products they sell, it can create a conflict of interest. Compensation varies on products and there is a possibility the potential commission could influence their recommendations for you. In contrast, fee-only advisors provide transparent advice and typically are compensated based on a percentage of the assets they manage for you. They cannot earn commissions from selling products or trading securities in their clients’ portfolios. Their only source of compensation is the fee paid by their clients. This type of arrangement removes the conflict of interest and leads to objective advice not centered on financial products.
One detail often overlooked when searching for an advisor is “fit”. You should like and trust your advisor as you will be sharing personal information with them that you don’t often share with others, even those that are close to you. Firms and advisors have different styles and philosophies, so make sure you are comfortable partnering with them as they are typically long-term relationships. Is the potential or current advisor accessible? How quickly do they respond to your requests for guidance? Searching out a firm with a track record of dealing with real-life scenarios is important. Experience and knowledge drive good advice.