What to Look for in a Financial Advisor

Your understanding of an advisor’s process and how it corresponds to serving your needs is essential. When choosing a financial advisor, the single most important issue to consider is their compensation structure. Only independent advisors are ethically and legally required to act as a fiduciary, which means they must always put your interests ahead of their own.

What is the advisor’s compensation structure?

An advisor’s compensation structure can tell you a great deal about what your experience will be like. There are three basic types of compensation structures used by advisors:

  • Fee-only: These advisors are entirely compensated by fees paid to them by their clients, usually as a percentage of the assets they manage.
  • Fee-based: These advisors receive the majority of their compensation from client fees but may also receive commissions on some products such as life insurance or other insurance products.
  • Commission-based: This person is someone who is not an advisor, but a broker of products. They are compensated, not for their advice, but on the buying and selling of investment products.
My Approach: By working with me, a fee-only advisor, it is more likely that your interests are aligned with mine. I am paid for my advice, not for the sale of any product. I don’t sell products. My advice is based on what is in your best interest. Essentially, you are paying for access to my time and wisdom versus purchasing a product or engaging in a transaction.

Does the advisor sell performance?

When an advisor you interview discusses their investment methodology, pay close attention. Do they highlight how much they have beaten the market lately? Or do they emphasize their ability to generate huge returns through a “specialized” or “proprietary” approach? If so, be wary. The promise or suggestion of consistent market-beating returns should be a red flag.

My Approach: Since each of my clients is unique and their goals are personal, their performance will be unique as well. My client’s performance is measured based on their goals and their progress towards achieving those goals, not how they performed within a “market.”

Is the advisor consultative?

The clearest sign of whether an advisor is consultative will occur during your first meeting. A consultative advisor will let you do most of the talking about what you are looking for and will ask you questions designed to identify what is important to you. By contrast, a non-consultative advisor will spend most of the time talking about themselves rather than learning about you and your goals.

My Approach: When we first meet, I will ask questions to help you paint a picture of the goals that you wish to accomplish. This will help me think like you financially and help me understand what is important to you – both of which are key to my success as your financial advisor.

What tools does the advisor use to maintain your wealth management plan?

A wealth management plan cannot be created once and put in a drawer. The plan needs to be monitored, reviewed and updated on a regular basis. Your advisor should have a systematic, disciplined method of reviewing your objectives and risk tolerance. Portfolios should be reviewed and rebalanced in order to keep the portfolio at the targeted allocation. Be sure to ask an advisor if they create an Investment Policy Statement for each client.

My Approach: Your plan is maintained through regular review of your portfolio, your goals and your progress towards accomplishing those goals. By using the latest advanced financial planning software, I am able to create your unique Investment Policy Statement and update your plan as often as needed.