You don’t have to be a multi-billionaire to start a relationship with a financial advisor; it makes good financial sense for anyone with plans for their future to sit down with a pro, though it does make sense to do some homework ahead of time.
Consider what it is you need a financial advisor to help you with. Many think that an advisor’s most important benefit is managing your money and maximizing investment returns. But, while that can be an important part of your financial plan, really good advisors provide so much more. Consider retirement planning, for example. While asset management plays a role, investment returns cannot lead to a successful retirement if the client is not saving enough money each month. A good advisor can provide guidance and coaching along the way to help balance spending, saving and investment goals and take optimal advantage of various tax-favored plans. She can help the client feel greater confidence in their financial decision-making and to have a laser-sharp focus on what is important to them about money.
Often your situation can help to determine what it is you are looking for in a financial advisor. Someone who has been recently widowed and has grown children may need an advisor with a different set of skills and expertise than a recent college grad starting his first job. Take a few moments to jot down some of your biggest financial concerns so that you can share those with the advisors you interview.
Speaking of interviewing advisors, let’s look at how you can narrow down the field of advisors once you have identified the help you need…
For many, their friends and colleagues are the best source for an advisor recommendation. Other sources include social media sites, the Certified Financial Planner organization, National Association of Personal Financial Advisors or review resources, such as Yelp.
Good advisors offer an initial consultation that will allow the client and advisor time to determine whether or not they would like to do business together. This is your opportunity to ask questions about how they do business and to determine whether or not you feel good about working together. Importantly, you should walk away from the consultation knowing how the advisor is paid. I have yet to meet any advisors who do their jobs for free, so while there are many different ways that advisors get paid, we are all compensated in one way or another! It should be explained to you in a way that is straightforward and easy to understand.
Another consideration for your initial meeting is to ensure that you get along well with your advisors. There are enough good advisors out there that you should not have to work with someone with whom you do not feel comfortable. Good communication and rapport can help you to weather the inevitable storms such as life transitions and market downturns.
Sadly, some advisors leave much to be desired. Here are some warning signs to avoid…
- Your advisor should explain how the investment strategy he or she is proposing works, in plain English. Investing does not have to be so complicated that it cannot be understood.
- Your advisor should not talk over your level of investment knowledge. If you leave with a list of acronyms that you’ve never heard before, it might make sense to find a better communicator.
- Finally, some investment products have deferred charges that can lock you into the investment for years, possibly even decades. Ask questions about your options if you choose to move the money or if you decide to work with someone else. If the time commitment exceeds your comfort zone, it may be a sign that you should find another option.
As you narrow the field of advisors, be sure to use online tools to verify an advisor’s background. For advisors who work with Broker-Dealers, check out FINRA’s BrokerCheck. For advisors who are affiliated with Registered Investment Advisory firms, check out SEC’s Investment Advisor Search. These websites will alert you to any disciplinary action against the advisor that might result in some additional questions.
Money is a topic that can be very emotional for many of us. Working with an advisor can help you to gain greater confidence in your daily spending choices, while also preparing you for the many transitions you will face in the coming years. Go out there and find a good one. You deserve it!
Bio: Megan Poore is a Financial Advisor at Lucien, Stirling and Gray Advisory Group, Inc. in Austin, Texas. She has long valued good advice. Megan was a client of Lucien, Stirling and Gray’s for several years before joining the firm as an advisor.