How to select a Financial Advisor

Selecting a financial advisor is a significant decision that can greatly impact your financial future. At sixty, you have been saving for retirement for nearly 40 years! A skilled advisor can offer valuable guidance on managing investments, deciding when to take social security and various other personal financial goals. This process involves more than finding someone with financial expertise. It means finding someone you can trust and who understands your individual financial goals. (18 Myths that can cost you in retirement)

Women need to be a part of all conversations when selecting a financial advisor. Women in general, outlive men by 5-7 years. That means managing your money for several more years on your own. It is very important for women to understand how your assets are invested and why. Be a part of the process!

Fiduciary vs. Suitability

Today, most financial advisors have a fiduciary duty to their clients. What does this mean? It means that they have a legal obligation to act in your best interest. When looking for a financial advisor, you will want to make sure they are a fiduciary. The key responsibilities are:

• A fiduciary gives “prudent” advice that are in your best interests
• Loyalty – Never put their (the advisor’s) interest above yours in providing advice
• Full Disclosure – Full transparency
• Give basic information about conflicts of interest

Some financial professionals only operate under the “suitability standard”. This means they can suggest investments that are suitable for you but not necessarily the most cost effective on your behalf.

Types of Financial Advisors

• Chartered Financial Analysts (CFAs) – They are typically part of a financial advisory firm, bank or broker dealer. CFAs make money as either a percentage of your assets under management or commissions. Many times, they are the investment manager not the financial advisor.
• Certified Financial Planners (CFPs) – Accounting firms typically employ certified financial planners. CFPs are also fiduciaries. They have a specific fee or hourly rate for services.
• Registered Investment Advisor (RIAs) – They are fiduciaries and legally obligated to act in your best interest. They typically make money based on the amount of assets they manage for you.
• Broker-Dealers – they can buy and sell investments and typically make a commission on the sales. They can sometimes have a conflict of interest based on the money they make from selling specific products.

Understanding the Type of Investment Management Firms

I mentioned the types of financial advisors, now where do you find them? Let’s look at each one with the pros and cons.

Bank Investment Advisors

Many regional or national banks have advisors in their branches. Examples of these are J.P. Morgan, Wells Fargo, Bank of America, Fifth Third, and Wintrust.

• Pros
  • Convenience of location – one place to go for all your financial needs
  • Will take on clients with limited assets or savings
• Cons
  • Many bank financial advisors have a very large client base making it more difficult to provide individual attention
  • Bank advisors may encourage use of proprietary products because of greater payouts
  • They may have strict rules on how to invest money based on your investment questionnaire

Full-Service Brokerages or Wirehouses

Full-service brokerages or wirehouse are firms like Morgan Stanley, UBS, LPL or Edward Jones.

• Pros
  • Access to a wide range of financial products
  • Extensive market research and proprietary financial tools for analysis
  • May take clients with limited assets and savings
• Cons
  • Fee structures can sometimes be higher due to brand premiums
  • Advisors may face pressure to meet sales targets or promote specific products
  • Advisors may have many clients and not have as much attention for individuals

RIAs or Registered Investment Advisors

• Pros
  • Typically, smaller client base and more individual attention
  • They often review portfolios more regularly and meet with clients more often
  • They typically have more experience. RIAs may have started at a Bank or larger broker-dealer and then moved to an RIA firm to give more personal attention to clients
• Cons
  • May have proprietary portfolios or specific models they use to invest funds – can be a Pro & Con
  • Typically, RIAs require clients with assets greater than $500,000
  • Fee structures can be expensive

Choosing the Right Financial Advisor

Hiring the right financial advisor can be a game changer for your financial future. You may start with one advisor and have to make a change due to your personal situation. Don’t feel bad about making a switch. This is YOUR financial future. We recently made a switch because we needed someone who had more tax saving and retirement strategies.

• Look for someone who is a fiduciary – they act in your best interests with full transparency.
• Do you know your financial goals? It’s great if you know what they are, but that is why you need a financial advisor to help you define your goals. These may include;
  • Growing your wealth
  • Planning for Retirement
  • Saving for education
  • Tax planning strategies
  • When to take social security
  • Managing the drawdown phase of retirement
  • And much more
• Do they have the tools or software to run different scenarios for your needs. Have them show you the reports they can run for you.
• Understand the Fee Structure. You should receive a fee structure and ADV form. Read the entire form so you understand their responsibilities as well as your own.
• Verify their credentials and experience. Financial advisors must take certain tests and be registered on FINRA. You can look any financial advisor up at FINRA/Brokercheck.
• Understand their Investment Philosophy. We interviewed several financial advisors. We found that some independent RIAs have their own proprietary funds that they put all their clients in regardless of stage of life. Ask to look at the “fact sheets” for all the investments they use.
• Ask about their services. Some offer many services such as tax planning, estate planning and insurance. Others only focus on investment management. The fees they charge may include additional services. Ask questions.
• Interview multiple advisors. They should all offer you a free consultation. If they don’t then you don’t want to work with them. Ask friends for referrals to advisors they like.
• Ask for references. And call them. You can get a lot of information from references.
• Look them up on Google reviews – that can also reflect if they do a good job and have good customer relations.

Your goal should be a partnership. Work with your financial advisor to communicate regularly. At a minimum, you should be meeting with your advisor twice a year. Life changes and they need to know so they can manage your funds effectively. No question is a dumb question. You have every right to understand how your portfolio is being managed. It’s YOUR money!