Choosing a financial advisor can be one of the most important financial decisions you will make. It’s important to work with an advisor that is honest and transparent, someone you feel comfortable working with, and ultimately is capable of handling the multitude of financial needs that piece together your financial picture. As a financial advisor, here are my top five things to consider, in no particular order.
Standard of Care
Put simply, a good financial advisor will have a Standard of Care that they will be able to tell you about. Some things to look for may include:
- How often will my advisor meet with me?
- Will my advisor proactively communicate with me about things that I find important on a regular basis?
- Is my advisor prompt about following up with me if I have questions or need something?
A good advisor manages a portfolio, but a great one manages your whole relationship.
Process
A thoughtfully crafted process is incredibly important, especially when it pertains to a subject that is constantly changing, cough cough, like the stock market, taxes, and estate planning to name a few. If a financial advisor can’t easily dictate their firm’s process, it’s probably because it doesn’t exist. Don’t work with someone who is reinventing the wheel over and over again. A repeatable process helps to ensure nobody is left behind, sacrificing returns or losing heard earned dollars.
Ask your advisor about their process.
Fee Clarity
When choosing an advisor, it is important to ask them how they get paid. As the investor, you get to be very upfront with this question. If the advisor can’t answer clearly and concisely, it may be time to move on to the next candidate. Fees should be straightforward and the advisor should be able to tell you what they are directly. You should also know how much you are paying. Fees can be complicated, disguised, or swept under the rug, but they shouldn’t. Ensure that your financial advisor acts as a fiduciary, putting the client’s best interest before their own pocketbook. If you don’t know the answer to these questions around fee structure, we encourage you to have the conversation with your advisor.
Advisor vs. Planner
There are major differences between an advisor that only manages your money in the markets and an advisor that actually sits down with you to plan for your financial future. Your financial advisor should be providing you with guidance to answer questions like, “How much money do I need to save per month in order to reach my retirement goals”, or “How much risk should I take on in order to achieve my goals”. The answers to these questions should not be guesses. Your financial advisor should be able to provide to you an individually tailored plan that answers these, and many other, pressing questions. An advisor will do a better job for you when they know what your plans, goals, hopes, and dreams are.
Risk
It is often said that the true test of a good financial advisor is not when the market is doing well but when the market is not doing so well. This is true. How do you know that now though? More so than just talking about returns, your financial advisor should be asking you about the level of risk that you are comfortable with taking and what types of risk you should take in order to pursue your goals. In addition to level of comfort, there’s another large factor to appropriate/recommended risk, and it’s how much is actually needed to give you the best chance of achieving your goals. Taking on unnecessary risk, especially during the income or retirement phase of investing can be incredibly costly. Sound risk management is far more important than chasing homerun returns.
Email me your questions at luke.mcneely@lpl.com or call 307-586-1880. You can also find us on social media.
