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The Ultimate Guide to Selecting a Financial Advisor

So many shingles hung out, dangling in the winds of today’s financial services marketplace. It’s a struggle for consumers – many of whom have little knowledge of the industry’s day-to-day workings – to decipher which service will best meet their needs. And, it’s also a challenge for advisors to differentiate themselves.

Below is a guide compiled from the answers numerous financial advisors provided when “Advisors Magazine” asked them, “What advice would you give to a client who is meeting a new financial advisor for the first time?”

This information helps consumers formulate their game plan for interviewing financial advisors and its insight from within the industry will help advisors evaluate their own practice, size up the competition, and further hone how they can best market their services through the deafening noise that surrounds the industry.

What is the advisor’s approach?

Investment philosophies vary from firm to firm. Some are highly aggressive; some are incredibly conservative.

As an investor, you want to be certain your advisor’s approach to investment and risk lines up with yours.

SeanCrowley1"Believe it or not, some advisors actually don’t have a philosophy,” said  John “Sean” Crowley, CEO of Stonehenge Advisors Group, LLC, in Philadelphia. “That is not what you want as a consumer. You want someone who can readily articulate what they believe in terms of investment philosophy and can provide you with the evidence to support that."

Crowley also said that it’s important to determine if the advisor is a one-hit wonder – someone that is great with a single financial problem, but isn’t capable of handling comprehensive, long-term planning.

“A lot of advisors may say they are comprehensive, but you really want to know the truth about that. Ask them, ‘are you going to help me analyze my Social Security options,’ or ‘help me determine the best financing for my auto or home,’ and ‘how are you going to help me keep ahead of inflation and reduce tax rates.’ If they can’t give you an answer, that advisor is not offering comprehensive services.”

It is also important to know the level of contact the advisor will have with you as their client.

bradwilliams100x90“Ask the advisor to detail the process by which they are going to help you solve your immediate financial problem, and then ask what kind of follow-up and meetings you’ll have after that,” said Brad Williams, president of Brad Williams Financial Services of Huntsville, Alabama. “Will you hear from the advisor monthly or quarterly, or will it be a couple years before you hear from them again?”

Understand what a fiduciary is, and why it’s so important.

The fiduciary standard has been hot topic within the financial services industry over recent years. Recently, the Trump administration squashed attempts by the federal Department of Labor to create a blanket definition of fiduciary for all financial professions to work under. But just because the government isn’t enforcing it, doesn’t mean that consumers should not understand what a fiduciary is and know how to discuss the topic when interviewing potential advisors—in fact, it should be a priority.

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One would think that working as a fiduciary, that is, working in the client’s best interest, would always be the role of an advisor. Not so in the financial services industry where “advisors” can attain varying qualifications that may or may not mandate this level of customer care. For some types of advisors, a suitability standard that does not necessarily place the client’s best interest first is acceptable when recommending financial products—as long as the products are considered “suitable” for the individual.

So, how do you know who is a fiduciary and who isn’t?

Seal of the United States Securities and Exchange Commission.svgOne clear indicator is if the advisor has an RIA (registered investment advisor) designation. If your advisor is officially registered with the U.S. Securities and Exchange Commission (SEC), he or she is legally held to operate according to the fiduciary standard.

Thus, a client asking to see an advisor’s own proof of SEC registration ought to receive a fairly prompt viewing of such documents.

grant conness circle“Ask that potential advisor if he or she is a fiduciary and if that means to them that they are required to work in the client’s best interest,” said Grant Conness, managing director and co-founder of Global Wealth Management in Fort Lauderdale, Florida. “Make sure the advisor you consider is working for you in that capacity. You want an advisor that is focused on you as the client and your goals, and not just selling or pushing a product.”

How is the advisor paid?


Seems like a no brainer, right? Whenever one engages in a business relationship, you want to know what it costs, right?

Yet, all too often, longtime advisors tell us that the issue of fees and how the advisor is paid includes an awkwardness that doesn’t exist in other business transactions. Clients aren’t just timid to ask that question, they are downright uncomfortable.

They shouldn’t be.

Chris real“Compensation transparency is paramount,” said Chris Abts, president of Cornerstone Retirement Group, Inc., located in Reno, Nevada. He is part of the third generation of financial advisors in his family and he’s had a ringside seat to watch the industry’s struggle with fees over the past decade or so. “If an advisor cannot clearly explain what the fees are, don’t work with that advisor.”

Having the “fees discussion” early on in the development of an advisor-client relationship lays its foundation.

George Rotate1 2 e1484272739702“Before I would ever sit with a financial advisor, I would want to know how they are paid and if they have a minimum investment management amount or minimum advisory fee,” said George McCuen, president and founder of Napa Wealth Management based in Napa, California. “I want to clear the air, so I understand how the advisor is motivated.”

Get on the same page and get it in writing.

There is a lot to discuss when an advisor and prospective client initially meet. Private and difficult subjects are part of the conversation. When an investor gets up from the table, he or she wants to be sure that they were understood, and that they also are clear on all the information the advisor communicated.

The pros suggest you get it in writing.

chris s“Specifically ask the advisor to detail—in writing—what you as the consumer can expect from them in terms of services for that very critical first year of engagement,” said Christopher Detmer, founding partner and managing director of Steward Partners Global Advisory in Washington, D.C. “It puts everyone on the same page.”

And it holds everyone accountable – a major component in developing a solid, trustworthy relationship, according to Abts, who also stresses the need for the nature of the advisor-client relationship to be put in writing.

“Ask that advisor if they consider themselves to be a fiduciary,” Abts said. “Make sure that advisor is required to put your interests first and then ask them if they will put that in writing. Don’t move forward if they won’t.”

McCuen further suggests that you, as a potential client interviewing advisors, also do some paperwork.

“You might want to give a brief outline of what you are looking for in an advisor,” he said. “You could also describe your situation that is causing you to search for an advisor.”

Having your needs pre-written to reference while talking to a potential advisor aids in keeping the conversation on track and goes a long way toward ensuring that you don’t overlook an important aspect you wish to be addressed.

Any complaints?

Don’t be shy about this: Flat out ask a potential advisor if anyone has made complaints against them and if so, also ask how the complaint was resolved.

team1“Has the advisor ever had any kind of action against them by any regulatory agency or any clients,” suggests John “Joe” Terril, founder and president of Terril & Co. based in St. Louis, Missouri, as a way to broach the subject.

If yes, that is a possible red flag. Get further details, he advises.

Do you fit the advisor’s client profile?

Each client’s financial situation is different, yet there are many crossover demographics and attributes that can comprise the type of clients a particular advisor serves.

“You want to ask the advisor about his or her typical clients; who are the people they work with,” Abts said. “Then ask yourself, ‘do I fit that mold?’”

If the advisory firm mostly has clients that are interested in green investing and you simply are not, that firm might not be the best fit for you. If the firm has extremely well-heeled clients for who risk is no big deal but you have limited resources and need a more conservative approach, then that firm also might not be a good fit.

A good or bad fit doesn’t mean a good or bad advisor or that you, as an investor, are unqualified. It just means the fit wasn’t right.

What about industry credentials?


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When offering consumers suggestions as to what questions to ask an advisor, Val Folden, president of Fredericksburg Financial Planning Services in Fredericksburg, Virginia, said, “Obviously, you have to ask them what their educational background and credentials are.”

And then, ask to see the certifications, he suggests. Most advisors will have them neatly framed in full display. If not, you might inquire.

Also be aware that while the industry initials that follow an advisor’s name tells you that the financial professional passed the test – it ought to also mean that he or she is competent, but that isn’t a given assumption, Folden cautions.

“Get a feel for the person in your interview of them,” he said. “If what you feel doesn’t match up with the credentials they claim, it might not be the best fit for you.”

Kris Maksimovich for Website 310x325Kris Maksimovich, president of Global Wealth Advisors based in Dallas, echoes Folden’s caution against relying too heavily on credentials.

“They are important,” he said. “But frankly, you can get out and get 20 credentials and have no life experience working with clients. The client has to find out what kind of experience is combined with those credentials.”

Trust your gut instinct.

Sure, emotions and all that touchy-feely stuff is something to keep out of future financial decisions, but when you are searching for whose guidance to make those choices with, your gut instinct counts.

“If you are not comfortable with an advisor; if you don’t feel you can trust them, then seek someone else,” Folden said. “Advisors can’t be all things to all people, so you have to find someone that you feel you can have an honest dialogue with or the relationship simply won’t work.”

Are clients referring the advisor to their friends and family?

Request to see written referrals and or inquire just how many referrals the advisor gets from current clients.

jeffMian“Ask them, ‘how many clients have referred you,’” Jeff G. West, Lead Partner of Financial Compass Group, LLC, suggests. The next moment is highly telling, he said. There shouldn’t be any hesitation. Comparing referrals for a financial advisor to restaurant suggestions, West said, “If I go out and get a bad steak dinner, I’ll tell people. If I go out and get the best steak dinner ever, you bet I am going to tell people. If your advisor is not getting referrals from current clients, you can know those clients aren’t happy and you can bet that advisor is not doing right by his or her current clients. No referral is a huge warning sign.”

Does the advisor have a niche?

There are a lot of advisors in today’s financial advice market – more than 300,000 actually, Mark Fonville, explains.

Markf“One of the first questions you should ask an advisor is what does he or she specialize in,” he said. As the president and wealth manager for Covenant Wealth Advisors in Virginia, Fonville said too many advisors are generalists.

Finding a financial professional with specific experience and qualifications is like selecting a doctor whose practice focuses on a particular part of the body, said Fonville.

“Just as in the medical profession when you have a specific illness or issue, a financial professional with a certain forte can do a much better job for the client if that is what he or she specializes in and it is exactly what the client’s financial situation needs,” he said. “I think the same is true for wealth management.”

jamesdavenport5 web IIJames Davenport, founder of Integrated Financial Group in Salt Lake City, Utah, characterizes the question of specialization in this manner:  “Ask what the typical client in their wheelhouse is,” he said. “Then, ask yourself if you fit in that demographic.”

Do your research.

Take advantage of what the internet has to offer when evaluating advisors. Visit their company websites. Check a firm’s status with the local Better Business Bureau. Visit their social media platforms to see their company news, activities, and how the firm, advisors, and staff present themselves online.

Then, click over to the FINRA BrokerCheck website. FINRA is the acronym for the Financial Industry Regulatory Authority—a private corporation conducting self-regulation for the industry, formed in 2007 in the wake of turbulent market activity and several scandals.

By heeding the advice offered by the financial industry professionals we’ve interviewed here and by doing your own research and due diligence to prepare, you should be well on your way to finding an advisor best suited to help you plan your financial future.

 

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