MBJ Guest Column: Choosing a Financial Advisor? Six Themes to Guide You

Your money is important. Choosing a financial advisor who can help you manage your money and make good financial decisions is one of the most critical decisions you will make. So, what should you consider when making that decision?  

Unfortunately, the world of financial advice is more complicated than it should be and often lacks clarity. Providers can label themselves differently – financial advisors, financial planners, wealth managers, or consultants – while providing broad or limited services. Businesses vary from Wall Street behemoths, independent broker-dealers, SEC registered investment advisors, banks, and trust companies to insurance-based firms. Some firms offer fee-based advice, and some sell products. A recent regulatory change – Regulation Best Interest – requires formal disclosers about the structure of the firm and how fees are charged. It also unifies some (but not all) of the regulatory requirements around serving clients. This is helpful, but it may not provide all the clarity you need. 

As an advisor, it’s been my guiding principle to ask, “What would I want if I were the client?” So, let me share what I would focus on if I were looking to partner with an advisor. Your relationship with an advisor must be built on capabilities, confidence, trust, and rapport. The initial conversation with a potential advisor is an important component of assessing those qualifications and the potential fit. 

Below are key areas of what you need to know and why. Some of this information will be provided directly, but some may come only as answers to direct questions. Thinking of it as an interview, focus on these six topics during your search. 
 
The Business
There is a wide range of businesses within our industry, ranging from large national firms to local independent firms and everything in between. You should know the background of the firm: when and why it was founded, how the business is structured, who owns it, and their long-term plan. You should know how the firm is regulated, including their fiduciary obligations and if there have been any regulatory issues that should be disclosed. There are no right or wrong answers (except for regulatory disclosures), but understanding the structure, history, and mission of the firm should build trust and inform your decision. 

The People
No matter how the firm is structured, your relationship will ultimately be with the advisor and his/her team. Understanding who you will work with, getting to know them personally, and experiencing good rapport is critical. You should also be aware of the roles and responsibilities of the team members, who your primary contact is, and how communication works. 

Confirming the advisor’s capabilities and expertise is important as well. Technically, there are no requirements to qualify as a financial advisor, so being aware of the experience and credentials matter. Here are some (not all) of the certifications within our profession considered best-in-class:

  • The gold standard for advisors is the CERTIFIED FINANCIAL PLANNER™ certification, which covers a broad spectrum of investments and comprehensive financial planning strategies. CFP® professionals must meet rigorous education, training, and ethical standards, as set by the CFP Board.  
  • Chartered Financial Consultants® (ChFC®) and Personal Financial Specialist (PFS™) are also certifications that cover investments and financial planning. 
  • Other certifications are more strategy-specific, including tax expertise delivered by certified public accountants (CPA), insurance planning via Chartered Life Underwriters® (CLU®), assistance navigating a divorce with a Certified Divorce Financial Analyst (CDFA), investment expertise through a Chartered Financial Analyst® (CFA®), advice for business owners from a Certified Exit Planning Advisor (CEPA), and charitable giving strategies via a Chartered Advisor in Philanthropy® (CAP®).

 
The Clients
It’s also important to understand what type of client the advisor focuses on and how that matches you and your needs. You want to make sure you are not an outlier within their client base, and they have experience and expertise in serving clients like you. The variables include the age ranges they work with, the average income or wealth levels of their clients, and any areas of focus that may overlap with you – medical professionals, teachers, young parents, corporate executives, widows, business owners, etc. 

The Services
Not every firm offers the same services or has the same capabilities, so making sure what they provide matches what you need is key. Some firms focus on investments with niche strategies. Some firms focus on financial planning but don’t manage investments. Some provide hourly advice and others deliver ongoing, comprehensive financial planning. 

The scope of comprehensive financial planning includes everything from retirement planning, tax strategies, college saving, debt management, social security maximization, estate planning, charitable giving, insurance needs, risk management, and anything else that may affect your money along the way. Firms labeled as “wealth management” generally integrate investment management and comprehensive financial planning in a holistic way and execute the recommendations on your behalf. Some firms take it a step further and provide "family office" services, which generally include more advanced planning and bespoke services such as bill payment, bookkeeping, and property management, all designed to make your life easier. 

You may have specific needs that need to be addressed, so making sure the firm has the resources and capabilities is important. Alignment around the investment approach is important, too, so be sure you understand and are comfortable with their investment philosophy and implementation. 

The Fees
Request to see a full fee schedule up front and make sure there is clarity and transparency regarding what will be charged. Before making a commitment, understand:

  • Fees the advisor charges and how those fees are paid.
  • Any sales incentives or commissions related to services provided. 
  • Other fees or expenses you may pay. 
  • Any compensation the advisor or the firm may receive from third parties. 

Potential Conflicts
The advisor you are considering will be paid for their services, but even if those fees are transparent, conflicts of interest may arise. Generally, that is when advice or products that are offered affect the advisor’s compensation or the firm’s profits in a positive or negative way.

For example, if making charitable donations is one of your goals, it may be best for you to donate appreciated securities from an investment account. But that donation may reduce the assets under management and thus reduce the advisor’s fees. Another example is when you have the option to roll over the money from an old 401(k) into your current 401(k) or an IRA. The IRA rollover scenario, which might be recommended for good reasons, might also create more billable assets and higher fees for the advisor.  

These conflicts don’t overrule the advisor’s required commitment to doing what is in your best interest and (hopefully) won’t change the quality of advice, but it is helpful to understand and be aware of situations that create these potential conflicts. 

Conclusion
A good financial advisor is someone you can partner with for life to help you achieve your long-term goals. Above all, never compromise on your priorities and values, and find someone who brings you comfort and confidence in making some of life’s most important decisions. These themes, while not exhaustive, can help set the right frame of mind when commencing your search.

This column originally appeared in the Memphis Business Journal.

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