The Five Characteristics to look for in a Financial Advisor
After a decade plus in the markets and after teaching and networking with over a thousand financial advisors, I have witnessed five characteristics that the best financial advisors have in common. These are the five things that I’ve told my family and friends to look for when considering an advisor. It’s a list that is born out of nothing but experience . . . just how any list should be created.
The Five Characteristics of a Financial Advisor that you should look for are . . .
Independence– By independence I mean they own their own advisory firm. There is a major difference between independent advisors and those advisors that work for a big financial institution. The biggest difference is that independent advisors make their own decisions (money management, marketing, fee structure, etc.). These decisions are made by answering the question, “what is right for my client?” Contrast that to a big financial institution who takes marching orders from the corporate office. If the big wigs sitting at the corporate office want to push a certain product or allocate a portfolio a certain way, they tell the advisors what to do. They then put their sales hat on and do it. I was on a recent phone call where the Financial Advisor (I won’t’ mention the gigantic firm they represented) on the phone said, “I’m not sure why we would allocate that much in bonds, that comes from our professionals that are managing money.” Huh?
Experience – Experience trumps everything. Designations are worthless. An advisor could have an alphabet after their name and it doesn’t mean a thing. Actually I take that back, what it means is that they read a lot of books and took a lot of tests. While the guys that are trying to earn a designation are reading and studying, the other guys are actually doing it. They are learning by actual experience. Don’t fall for the trap of looking for those only with designations. I will tell you from experience, you will overlook the best of the best. When meeting an advisor ask them about their experience, don’t worry about designations.
Integrity – We all know how important integrity is. You want someone that has a flawless, clean reputation. Someone that you can call to get the best advice for you. Do your homework by asking friends and family about this advisor. Do they follow up with you? Do they meet with you as often as you would like? Do they have your best interest in mind? These are the type of advisors that will sit down, evaluate the needs and goals of a client and take seriously the fiduciary responsible they have to that client. In addition, look for the advisor online. Check and see if they have written content, blog posts, and have other social media outlets. This type of research tells you a lot about the type of person they are.
Fee Only – This is fairly straight forward. You want hire an advisor that charges a flat fee with no hidden costs or commissions. Most advisors will charge 1.0 – 2.0%. However, if you have special circumstances and need additional risk protection on assets you own, you may have to pay a bit more. One of the first questions you should ask a potential advisor is “what’s your fee?” Make sure to ask about any additional costs and fees.
Imagination – In an ever changing world where twitter has overtaken the newspaper and desktop computers are becoming obsolete, imagination is more and more important. Look for an advisor who understands the changes and challenges that we all face today and is doing something about it. From your kids or grandkids college accounts, to changes in tax code and regulation to basic communication differences between baby boomers and millennials. Adjusting to an ever changing world is important. Those advisors without this imagination will be a thing of the past.