Assessing Potential Financial Advisors

Whether you opt for a commission or fee based financial advisor, you want to find the best possible. A highly competent person who is suited to cover your unique needs.

As in any type of business, there can be significant differences between advisors. In quality, service level, and personality.

Here are a few thoughts on finding the right advisor for your needs.

Technical Skills and Experience

Review the advisor’s technical credentials and experience.

Anyone can call themselves a financial planner. Make sure they possess the skills you need.

This is especially important in the areas you want specific assistance.

Match Advisor Expertise to Your Specific Needs

If you want to protect your family against unexpected misfortune, an advisor with an insurance background may be preferable to a tax accountant or lawyer. But if you want estate and tax planning advice, the tax accountant or lawyer will be high on your list of needs.

Do Not Rely on Advisor References Alone

Try to find independent sources to assess the advisor’s quality of service. No doubt the advisor has a reference list of satisfied clients. But if you can find unscreened clients to aid in your review, so much the better.

Individual Advisors Cannot Be Experts in All Areas

All the skills and services you require need not be provided by the advisor alone.

I do not believe that any one person can be an expert at everything. But the advisor you deal with should be strong in certain areas where you need assistance. And that advisor should have access, either in-house or through business relationships, to other experts that can complement the advisor.

The more complex the support you desire, the higher the probability you will need more than one person providing advice.

And, yes, if you plan to use others in conjunction with your advisor, you should do some due diligence on them as well.

Professional Organizations and Standards

Review the professional organizations that the advisor is affiliated with.

Given the plethora of financial designations, I would avoid advisors with no affiliations.

You should also learn something about any organizations you are unfamiliar with. Some are a little bit more professional than others. An internet review or discussions with someone in the industry (other than your potential advisor) can help you determine the stronger and weaker professional organizations in your region.

A Member in Good Standing

Verify that the advisor is a member in good standing.

That certificate on the wall might be real, but you need to ensure the advisor is currently a member of the organization. That he has not been suspended, decertified, or other actions taken that may make you think twice about using his services.

Understand the Advisor’s Rules of Engagement

Be comfortable with how the advisor is supposed to act in client dealings.

Most professional organizations impose ethical standards on their members. You can obtain a copy of the current standards from the advisor or from the organization’s website.

Understand the framework within which the advisor should operate. Standards vary between organizations, so know what is applicable to your advisor. If you have questions or concerns, clarify in writing with the advisor before signing on.

As a Chartered Financial Analyst, my code of ethics says that I must: “place the integrity of the profession and the interests of clients above your own interests; act with integrity, competence, and respect; improve and maintain your professional competence.”

One specific example is: “Investment transactions for clients and employers must have priority over investment transactions in which a Member or Candidate is the beneficial owner.”

There are similar standards that I must follow as both a Canadian Chartered Accountant and Certified Financial Planner. Breaches of these standards may result in varying punishment levied by the individual organization. And, of course, some actions can result in legal issues.

Client and Advisor Compatibility

Assess your compatibility with the advisor.

Most clients check out the technical skills and experience of advisors, but many ignore the philosophical side.

This is a mistake.

Share the Same Planning Philosophy

You and your advisor must be on the same page if you want to be comfortable in your financial planning or wealth management approach.

Different advisors have different styles and different investment theories.

You need to find one whose approach you agree with or there will be many sleepless nights ahead. You do not want to own a portfolio of commodity futures and short term options if you are more comfortable with a low risk portfolio of blue chip stocks and high quality bonds.

Find Someone that Can Meet Evolving Needs

You also want an advisor that is flexible enough technically that he or she can grow with you as your needs change and evolve.

For example, when young and single, you may want to focus on higher risk investments.

Then one day you get married, assume a mortgage, and have a baby. You want someone that can help you with term insurance to protect your family should a crisis hit. You may also want someone that understands how to set up tax deferred education accounts for a college fund for the child.

This evolution in your needs will continue until the end of your life. Finding an advisor that can assist you in most, if not all, phases of your wealth management journey is useful.

Cost Comparison

When comparing advisors, cost should not be ignored.

You want high quality service, but at a reasonable price for the market.

Know What You Are Paying For

And always make certain you are comparing apples to apples.

Define what is, and what is not, included in the fee schedule. When assessing multiple advisors, you want to ensure that you are reviewing fees for identical services.

The Tradeoff: Minimizing Costs While Maximizing Service

Remember with costs, you want to minimize expenses and maximize what is invested.

Yet, at the same time, do not forget that you usually get what you pay for.

Two statements that may be difficult to reconcile.

Save money on advisors to the extent possible.

But always ensure that you find someone who is competent and will assist in meeting your long term financial objectives. A little more money spent up front may earn you significantly more in the long run than if you take only the cheapest option.

In following my suggestions, you will be well on your way to finding the proper mix.

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