How to Hire a Financial Advisor
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Ready or not, the holidays are headed our way. Soon, we will be carving the turkey, scrambling to get our last-minute gifts, hearing jingle bells in our sleep, and pulling out our ugly sweaters for their once a year use. Although family gatherings may look completely different this year, safely in-person or virtual family conversations will still be in our midst.
Remember that unspoken rule that you shouldn’t talk about money or politics at family gatherings? You know - the rule that somehow always gets broken at holiday parties? Well, I’m here to help you be prepared with what to say. Let me back up: I’m here to help you with the money convos - not the political side. You’re on your own for that one.
Financial Advisors are one of the many money topics that get brought up. Whether you are currently working with an Advisor or are on the hunt for one, knowing how to hire a Financial Advisor is a skill worth knowing. I’m not encouraging you to break the unspoken rule, however, I am encouraging you to continue reading to impress your Uncle with this valuable piece of wisdom.
Fiduciary All the Way
Did you know that there are Financial Advisors who have no legal obligation to put your best interests first? Not only that but they can recommend investment products to you that actually pay them more. This sounds crazy - I know. The craziest part? Over 90% of so-called “Financial Advisors” are NOT fiduciaries. You don’t want to ever question if your Financial Advisor advised something because it was best for you or for them.
Financial Advisors who are true fiduciaries are held to a legal standard where they must put your best interests first. They cannot earn commission off a product they recommend. They will disclose any conflicts of interest.
Know How They Get Paid & How Much You Pay
Financial Advisors can get paid in many different ways. Commission-only, fee-only, fee-based are all examples of how they receive a paycheck. Make sure you fully understand how they get paid and what they will charge you. If they aren’t giving you a straight answer on their fees, this should be a red flag.
Want a hint? Fiduciary Financial Advisors are classified as fee-only. They could charge you on a flat fee, an hourly rate, retainer method, a percentage of assets under management, or a combination.
Don’t forget about your investment portfolio’s expense ratio. The expense ratio is charged by the investment company to the investor. This fee reflects the cost of the investment company’s management and operating expenses. Even though this percentage does not go to your Advisor, it’s important that they are transparent about your all-in costs.
Transparency is key here. Don’t leave the Advisor’s office without a complete understanding of how they get paid and how much you will pay.
Understanding Your Relationship
Communication and access to your Advisor are important. You should have a clear idea of how your relationship will work. Will you meet once a year? Twice a year? More? How can you get a hold of them? Everyone has a different idea of how often they want to talk to their Advisor.
Be on the same page with the expectations of your relationship and also the Advisor’s capability to meet those expectations.
Good Educators Matter
When you are interviewing your Advisor - remember, you are hiring them - ask questions and listen to how they respond. Do they take the time to explain and teach? Are they patient with you? Most people like to have a basic understanding of why their money is doing what it is doing. Advisors need to be good educators and focus on making sure you understand. Who wants to leave their meeting confused and unsure?
Gotta Click With Them
No one wants to be bouncing around Financial Advisors throughout their lifetime. In a perfect world, you and your Advisor could have a relationship that lasts your entire life. If we go into it with that mindset, you need to click with them. Relationships matter! Feel out how you jive with them and make sure it is a good match.
Do you love the company but just aren’t clicking with one Advisor? Be honest with the Advisor and ask if they recommend another Advisor from their company. This is your financial life and working with someone you enjoy should be a priority.
What’s Their Investment Philosophy?
What are the beliefs and principles that they will make investment decisions based on? Do they align with your goals? An Advisor should be able to clearly explain this to you. Another great question to ask them is, do you or would you personally invest in this fund? That answer can lead you in the right direction.
With this guide, you can now go confidently to your holiday parties. You may even want to break the unspoken rule. I don’t blame you - people need to know this. Do you or a family member already work with an Advisor? Challenge them to answer any area of this guide you may not know.
Hire a Financial Advisor who is a fiduciary, transparent of their fees and your all-in costs, clear about your relationship, a good educator, someone you click with, and has a defined investment philosophy.
The holiday season always flies by. Soon the ringing of the jingle bells will be replaced with the ringing in of 2021. Start your new year off knowing how to hire the right Financial Advisor and doing so confidently.
Here, at Fiduciary Financial Advisors, we take our fiduciary oath seriously. We hold these five principles:
I will always put your best interests first
I will avoid conflicts of interest
I will act with prudence; that is, with the skill, care, diligence, and good judgment of a professional
I will not mislead you, and I will provide conspicuous, full, and fair disclosure of all important facts.
I will fully disclose, and fairly manage, in your favor, any unavoidable conflicts
The information contained herein has been obtained from a third party source which is believed to be reliable but is subject to correction for error. Action Point Financial Planning LLC does not give legal or tax advice. The information contained does not constitute a solicitation or offer to buy or sell any security and does not purport to be a complete statement of all material facts relating to the strategies and services mentioned. Past performance is not a guarantee or representation of future results.