By George M. Smith, CIMA®
Finding a qualified financial advisor is a big decision. Using the word qualified may seem obvious, but just because someone holds themselves out to be an advisor doesn’t guarantee that they are equipped to meet your financial needs.
When looking for a qualified financial advisor, I believe that you should consider the following five areas.
- Culture
Most advisors are not used to answering questions about culture, and most prospective clients do not think to ask about it. Culture is the heartbeat of a firm and it reflects the firm’s true nature, reveals what it promotes internally and externally, and determines what is expected of its employees.
There are two basic types of cultures: sales and planning.
In a sales culture, the priority is to meet a quota or sales goal by selling products that are merely suitable. This type of environment increases the odds of your interests being secondary to the sale. If you choose to accept this type of culture, then extra scrutiny should be given to any recommendations.
In a planning culture, you will likely find more advisors with advanced knowledge, accredited designations, and a defined service model. A planning-focused culture often goes hand-in-hand with being a fiduciary. Ultimately, most people prefer to be empowered to make informed decisions rather than just being sold a product. Ask the advisor to give you examples of what their planning process entails and how they uphold fiduciary standards.
- Philosophy
Understanding an advisor’s philosophy is vital.
Knowing what an advisor believes should inform you on how they will guide you through various economic and market conditions. Their philosophy will also indicate how they address comprehensive planning needs such as investment and risk management, tax planning, and estate and charitable planning. Like in any successful relationship, expectations need to be addressed. If you believe one way and the advisor another, it will most likely lead to a strained relationship.
Look for an advisor (and a firm) that are fee-only and are full-time fiduciaries. These advisors seek to avoid many of the conflicts of interest that exist in the financial services industry. They do not get paid by commission and are always required to act in your best interest.
- Credentials
Credentials (sometimes referred to as certifications or designations) are a must. They communicate that an advisor has risen above minimum financial industry licensing standards and has completed rigorous coursework to increase their knowledge and skills.
A note of caution: there are dozens of designations, and not all are created equal. Some advisors use “letters behind their name” to make them look more knowledgeable than they are and many of these designations can be acquired after a few days of study.
Accredited designations such as CERTIFIED FINANCIAL PLANNER™️ (CFP®), Certified Investment Management Analyst (CIMA®), and Chartered Financial Analyst (CFA®) can take years to complete. Professionals who hold these certifications are held to high integrity, loyalty, knowledge, and objectivity standards.
- Experience
An advisor’s experience and training are integral to the level of advice you will receive. Credentials, a sound planning philosophy, and a client-centric culture are enhanced by the individual advisor’s experience.
When interviewing a financial advisor, ask questions about their formal education and the training they have received. Seek to understand their areas of expertise such as tax planning, retirement income planning, investment management, and charitable giving strategies, to name a few.
- Investment Management
How your assets are invested will be a factor in determining whether you achieve your goals and at what cost. The most reliable and time-tested approaches are supported by academic research and empirical evidence through evidence-based investing. I suggest looking for planning-focused advisors who employ this type of approach.
A few red flags to look for when considering investments are ones with catchy marketing names that highlight features. Look beyond the superficial and focus on substance. Seek strategies that have a long-term track record of consistently executing sound investment philosophy and good results. When it comes to historical performance ask if it reflects actual returns or back-tested data. Back-tested data is hypothetical and can be deceiving.
The client-advisor relationship should put you, your interests, and your priorities at the forefront. You should also be your own best advocate and do the necessary research to find an advisor and firm that best meet your needs. With every question you ask, don’t just settle for the answer provided. Ask for proof.
Understand that not all firms are alike. Be purposeful about knowing with whom you are working and why. It may be a good idea to talk with several firms before you make a decision.
Any good and productive relationship takes time to establish. Imagine how much more confident you will feel when you know you’ve done your due diligence.
Here are a couple of resources to further help you as you’re meeting with and evaluating financial advisors:
