5 Essential Tips for Choosing the Right Financial Advisor

Choosing a financial advisor carries weighty implications. Money is an all-encompassing tool that affects everyone in every walk of life, regardless of your education, socioeconomic status, age, geography etc. Money is also a deeply personal topic that is associated with many different emotional responses, positive/negative memories, family situations, marital issues, and too many more to name.

Because of this, money cannot be viewed in a vacuum or solely as a quantitative tool. Rather, it should be viewed as a means to the things which carry a weight that are deeper than what money delivers on the surface. Many times, this can never be completely defined as it is nearly impossible to attach a human’s values and personality to something so un-human as money is.

That being said, that’s where a financial advisor can be such a valuable resource. Let’s unpack this broad reaching topic(as best we can) and narrow down the list of the most important aspects to look for when choosing a financial advisor.

Identify what you are trying to achieve

This should be your first priority as this is your self-defined view of success. Just like scoring a touchdown, connecting on a base hit, or getting the best race time, nothing else is as important as achieving this mark of success.

Although success can be defined in many ways in this arena, one of the best viewpoints to take on this subject is improvement. In the financial world, there are very few hard and fast milestones that indicate success. Rather, it is almost always a journey of constant improvement, continuing to make one small, good decision after another. Over time, this journey of a thousand(or more) steps can be quite an impressive feat.

Here are some examples of areas that one would want to experience improvement(and ultimately success) in:

  • Debt management/reduction
  • A better investing plan
  • Spending control
  • Overall financial discipline
  • Less financial stress

This is a fairly short list when considering all of the available options, but the point is still clear. When it comes to defining your list of priorities, some of them may be broader than others and may require more or less involvement than others. For example, someone who is beginning their journey to invest may simply need a broker to facilitate a one-time transaction to get them started and save money on fees while they continue to grow their overall assets. Conversely, someone who wants to retire in 5-10 years may have a much bigger set of complexity that needs addressed from multiple viewpoints. This person is most likely in need of a comprehensive financial planner that can speak to multiple financial topics and circumstances.

Identify who else will be affected

Rarely do our money decisions not affect someone other than ourselves, and this should be another important point to consider. While a spouse might be the most obvious person, others may include adult children(if you’re planning for legacy needs), parents(if you’re out of the house but still need some guidance), or other extended family members if you don’t have any immediate family.

By identifying those who will be affected most by our financial decisions, we allow our decision in choosing an advisor to be narrowed down further. Including estate planning, gifting, education, or retirement in the list of desired services eliminates those who aren’t qualified to help with such issues.

Another item to consider is not just who will be affected, but to what level you would like them to be involved. Although adult children may eventually be affected by your financial decisions, you may or may not want to have them involved in the actual decision making process. Communicating this to a potential advisor will let them know how to handle these types of situations in the future as they arise.

Scope of advice they actually give

Next, understanding the scope of advice an advisor actually gives is an important qualification.

For example, someone may carry the CFP®, credentials, but if they work for a firm that does not allow them to deliver advice on various topics that a CFP® knows about, you may not be receiving what it is you are expecting. Many times, the compliance department of large firm disallows those advisors from giving in-depth advice because it is simply too difficult to manage a large number of advisors at that level.

Further, just because an advisor has the knowledge or experience in a certain type of financial area, it is always best to actually ask if he or she will give you advice in this area for your specific needs. Many times, advisors may start in the industry at a very broad level and then refine their target clientele to a very specific demographic or niche. An example in the medical industry would be like a doctor who began as a general practitioner and is now a cardiologist.

How the advisor is paid

It is unfortunate that the way advisors are paid is so opaque. There are so many different types of fee structures, add-ons, and types of advisory relationship that it is impossible to narrow them all down in one article. However, I believe that simplicity is usually the best policy. If an advisor can communicate their fee to you in an easy to understand way, it is a good sign that they will be able to communicate future matters to you in a similar way.

That being said, here are a few of the various ways advisors are most commonly paid:

  • Transaction Based
    • Insurance
      • Commission Trailers
      • First Year Premium
      • Internal Expense Ratio
    • Product Related
      • Mutual Fund Fees
        • Front End/Back End Loads
        • 12b-1 Fees
  • Fee Only
    • Assets Under Management (AUM)
    • Flat Fee
    • Hourly
    • Ongoing/Subscription
    • Project Based

Check out this informative article from the CFP Board on the various types of fee structures and their advantages/disadvantages.

It is also important to know how your potential advisor is registered. It is a fairly straightforward process to get legally registered to work in the financial services industry, but again that doesn’t necessarily mean the person knows what’s best for your situation as a whole and/or is going to be working in your best interest. Here are a few of the different ways someone can be registered:

  • Broker/Dealer
  • Insurance
  • Investment Advisor Representative

Personality Fit

While investing knowledge, tax acumen, and industry experience are important qualifications, personality attributes are worthy to be on the list of important characteristics that go into choosing a financial advisor. If you’ve covered the big topics and are now moving on the softer side of the relationship, make sure you are considering someone that can deliver advice in a way you can comprehend and understand. Make a list of the most important personality traits that you want in an advisor and keep this list top of mind when talking to them. Examples of these traits might include:

  • Overall Worldview
  • Family Values
  • Spiritual Values
  • Role of Money in their life
  • Personal Financial Management

The majority of this stems from a personality match – not so much in an eHarmony way, but in a shared set of values or common ground that each can relate to. Being able to communicate effectively and build trust involves having a sense of familiarity with the other person that goes beyond just dollar signs and percentages.

If you don’t know the personal values of the advisor you are looking at, asking these questions early can help you to avoid a potential difference of viewpoints at a more pivotal time in the future.

Determine how you want to communicate with your advisor

Last, a somewhat smaller, but still important aspect of choosing a financial advisor is the way that they communicate with you. The traditional approach to finding an advisor is to google “financial advisor in XYZ Town”. However, many people overemphasize location over quality. Many times, a face to face interaction is deemed to be the only way to do business. However, the work of a financial advisor is not necessarily tied to a certain geographic location and can many times be done from anywhere.

Because of the opportunities this opens up to finding the right advice for you, then choosing how you want the advice delivered becomes an item to consider. If you’ve found the advisor who can give you the advice you need, is paid clearly, and has the personality fit, one of the only things left to discover is how they are providing the advice to you. Common examples of advice delivery include:

  • In person only
  • Virtual only
  • Hybrid(in person/virtual)
  • Asynchronous(recorded videos/screen-share)
  • One to many

In my experience, people learn differently with different methods, and it’s usually best to communicate in more than one way. For example, a busy professional might not be able to meet during the day but might enjoy a short video explaining a concept that he can check after a busy day at work. Another example is a retired couple who prefer not to drive on cold day to the office and can instead login to a video meeting from the comfort of their living room.

There is no one size fits all for everyone, however, having multiple ways of communicating can be a valuable item to consider when choosing a financial advisor.

Ultimately, choosing the right financial advisor is a decision that should be considered thoughtfully and prayerfully. Many times it may not be the first advisor that you interview, or will take some time to fully know how the individual ranks in all of the important areas. However, once you’ve found the right advisor for you, a valuable partnership is formed and all of the hard work becomes worth it.

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This content is developed from sources believed to be providing accurate information. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Evergreen Financial Group, LLC is a registered investment advisor offering advisory services in Montana and in other jurisdictions where exempted. Registration does not imply a certain level of skill or training. This communication is for informational purposes only and is not intended as tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. This communication should not be relied upon as the sole factor in an investment making decision. All opinions and estimates constitute Evergreen Financial Group’s judgement as of the date of this communication and are subject to change without notice. Evergreen Financial Group does not warrant that the information will be free from error. The information should not be relied upon for purposes of transacting securities or other investments. Your use of the information is at your sole risk.