Top 5 Tips for Choosing the Best Financial Advisor
So, you’ve decided that you need the help of a financial advisor to make progress on your financial goals, avoid financial pitfalls and/or manage your money. As you begin collecting recommendations from friends, querying Google, or asking Alexa to help you find the best financial advisor for your needs, you may find that it’s a much more daunting process than anticipated, especially, if you don’t know the right questions to ask.
The best way to get started on your hunt for the right financial advisor is to keep it simple. The term “financial advisor” is used to describe many different types of professionals, so it can be confusing to assess who’s right for you. Yes, amidst the confusing titles (wealth manager, financial advisor, financial planner, broker, investment advisor, etc) and industry jargon lies straight-forward questions that shed light on which advisor can help you achieve your goals. So where do you start?
1. Learn about the advisor’s background and expertise.
To better navigate confusing titles and industry jargon, it’s important to focus on the potential advisor’s level of experience and relevant expertise to your needs. You should know basic things about your advisor, including:
How long have they been working in the industry?
What are his or her areas of expertise?
How many clients do they have?
What types of clients does the advisor work with?
Business owners, young families and retirees all have very different needs and circumstances, so experience with clients who have needs similar to yours is a must.
If the prospective advisor is a referral from a friend, you’ll want to dive deeply into what they know about the advisor:
Why do you like this advisor?
How did you find this advisor?
Why is it about this advisor that makes him or her right for me?
While there’s no substitute for experience, your advisor’s education and professional credentials can give insight into their capabilities and perspective. Some credentials require intensive, comprehensive coursework and rigorous testing, while other credentials are require far less. There are new certifications and licenses being offered all the time, but the most rigorous and comprehensive certifications for financial advisors are the CFP for financial planning and CFA for portfolio management. However, credentials should be just one part of your criteria for choosing a financial advisor.
Since many financial advisors attend conferences and advanced training regularly, you may want to ask him or her for conference programs and/or continuing education courses that they participated in within the last 12 to 18 months. That way you can get a sense of what they specialize in, and if the content is relevant to your situation or more focused on sales.
It's also probably a good idea to look up any financial advisor you're thinking about working with on the SEC's Investment Advisor Public Disclosure website. On the site you'll be able to see not only the advisor's work history and registrations, but if the advisor has had any regulatory disciplinary actions disclosures about them are available.
You may want to involve your spouse, and even perhaps you age-appropriate children, in the vetting process. This will give you a sense of the level of collaboration and chemistry that the advisor will have with the people you care most about and give context to the prospective financial advisor about the what and who is most important in your life. Your family may also be able to add value in the evaluation process given their unique perspectives.
2. Understand the advisor’s approach and philosophy.
Choosing the best financial advisor to help you achieve your goals and aspirations goes beyond just investing your money, you are partnering with someone that has a key role in fulfilling your dreams and goals. That’s why it’s an absolute must to truly get to the core of an advisor’s approach. If they can articulate how their process, philosophy and methodology clearly and determine how this approach can help you achieve your financial goals, you’re close to being on the same page. To get one step closer to choosing a financial advisor that best meets your needs, be sure to ask:
Does the advisor do holistic financial planning or do they just manage money?
How does the advisor address various areas, such as tax planning, college planning, business planning, life event planning, real estate planning, cash flow planning and estate planning?
How do they coordinate with your other advisors, such as your CPA, estate attorney or insurance broker?
What's their investment philosophy? How do they manage their own money and how does that differ from the approach they use to manage client assets? A disconnect could be a red flag.
3. Get a sneak-peek of what it’s like to be a client.
You wouldn’t commit to a two-hour movie without first watching the trailer, so why commit to a financial planner without a preview of what it’s like to be a client? To better understand an advisor’s approach to client relationships, have several trial meetings to see what kind of questions they ask and how well they get to know your financial situation. Some key concerns to explore when narrowing down financial advisors are:
Ask them about very specific hypothetical financial issues that mirror your financial concerns and goals: What are my options if I had to sell my business? What estate planning techniques would be helpful for charitable giving? What financial steps would I take if I got divorced or received an inheritance?
Inquire how often and available they would be to review your financial situation. A good advisor should be available to meet frequently and quickly respond to ad hoc questions and concerns.
Call client references. Although any references you call are likely to be handpicked cheerleaders, calling references could give you a helpful perspective of what it’s like to be a client before you tie the knot.
After your trial meetings, this “sneak-peek” should make you feel much more confident you are choosing the right financial advisor. Just don’t be “that guy” who watches 15 trailers without ever getting to the movie (you know who you are).
4. Examine the advisor’s objectivity.
If you scan your Facebook newsfeed for five minutes, it’s no secret that objectivity is a hard thing to come by these days. Try to determine if the advice you are getting from your advisor is fundamentally objective. Some key questions to gauge your advisor’s objectivity are:
Is your advisor a fiduciary and “fee only”?
How does your advisor get paid?
Does your advisor’s firm have fee-sharing relationships with the product providers in client portfolios?
Does your advisor recommend securities that their firm has investment banking or commercial banking relationships with?
The bottom line: The only interest of your financial advisor should be your best interest. Period. You may want to consider finding an advisor on the National Association of Personal Financial Advisors (NAPFA)'s database. Advisors in NAPFA are required to sign and renew yearly a fiduciary oath and abide by a code of ethics with an emphasis on independent advice. These advisors are “fee only,” which means they don’t make more or less money based on which investments they recommend. If you want a personal referral, you might want to try asking your CPA or estate planning attorney, since these professionals interact with many financial advisors on a regular basis and have a basis for comparison.
5. Explore the tools your financial advisor will provide.
Once you feel confident in your financial advisor’s background, expertise, philosophy, and objectivity, the final cherry on top will be any tools that the financial advisor provides. In this digital age, financial advisors should provide online assessments and a one-stop dashboard where you can see all of your financials in one place. While these tools should not make or break your decision when choosing the best financial advisor for you, they are a great way to provide full-transparency and easy access so you can stay in-the-know and rest easy. Some simple questions you can ask are:
Do you provide any online tools where I can see all of my assets in one place?
Are there online tools that you provide that can track spending and income?
Can I do real-time financial planning scenarios?
How intuitive and easy-to-navigate are the online tools? Can you set up a demo account for me to explore?
When focusing your efforts on these top five categories in your search for the best financial advisor, you should find yourself partnering with the right financial planner for your needs and goals. Navigating through the myriad of alternatives can seem overwhelming, but finding a topflight, vetted professional that can help your financial goals become a reality is an investment worth making.
David Flores Wilson, CFP®, CFA, CEPA and Dann Ryan, CFP® are New York City-based CERTIFIED FINANCIAL PLANNER™ Practitioners & Wealth Advisors with Sincerus Advisory. Click here to schedule a time to speak with us.