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Choosing the right financial advisor for your wealth management needs can be a daunting task. There are countless firms and individuals advertising themselves as investment managers, brokers, or advisors – and in some cases, it’s not in their best interest to tell you exactly what services they offer from the outset. Throw in the variety of related-but-not-synonymous terms used in the industry (financial planner, investment advisor, wealth manager, etc.) and it may become difficult indeed to find the financial planning services that best suit your individual needs. As with most things in our industry, though, a little bit of explanation can go a long way. In this post, I’ll try to make it as simple as possible. So how exactly does one go about finding the best financial advisor?

Step One: Figure out your objectives.

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The first step in selecting a financial advisor is determining what you want and/or need from the relationship. Do you simply want someone to connect you with investments? (To simplify, we will refer to these as investment advisors.) Or are you looking for someone to take a comprehensive look at your finances and tailor a financial plan to your goals (hereafter referred to as wealth managers)? Most financial advisors are really just connecting you with investments, but have figured out that if they call themselves financial planners or wealth managers, they can get away with charging the same as those providing comprehensive services. If you only want or need investment advice you should find an investment advisor that provides this service for a fair price (about 1/3 the cost of an actual wealth manager). If you are looking for comprehensive wealth management, here are some ways to tell if you are getting the service you desire.

Step Two: Examine the financial plan in detail.

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A written financial plan should be prepared and maintained. Ask your advisor the following questions:

Does the plan include tax planning?

If your advisor doesn’t review a copy of your tax return, this is an immediate red flag.

Did they collect cash flow and debt data?

An advisor that understands your cash flow situation and debts can provide immediate impact by helping you prioritize where your money is allocated and how your debt is structured.

Did they discuss estate planning?

A good advisor will make sure your wealth is efficiently transferred according to your wishes. An advisor that doesn’t understand your estate plan may actually unravel your previous planning by improperly titling accounts.

Did they discuss personal Risk Management and review insurance policies or other ways of mitigating risk?

We all have different levels of risks that we are exposed to based on what we own, our occupations, serving on boards of directors, kids, etc. A good advisor will incorporate these risks along with your unique risk capacity into the wealth management plan.

Does the plan appear to be tailored to your unique goals and situation, or does it appear to be a cookie cutter plan quickly generated by a computer with a few inputs?

An advisor providing comprehensive services should also provide a number of intangible benefits.

Do they protect you from yourself?

Poor investing behavior can be one of the biggest drags on returns. Investment advisors will claim to provide this, but in my experience, because they have no real relationship with you, they haven’t built the trust necessary to prevent you from making the big mistakes. A good wealth manager will tell you what you need to hear, not just what you want to hear.

Will they point out opportunities you are missing?

A good wealth manager will save you money not reflected in the portfolio through better debt management, improved tax planning, evaluating business ventures, and more efficient insurance policies.

Do they work with other experts?

No one can be an expert at everything, so it is important your advisor knows their limits and when to bring in other trusted professionals.

Will they help you stick to the plan?

A good advisor will be encouraging and help you avoid being too fearful or greedy.

Step Three: Make sure your financial advisor fits the bill.

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While the details of an advisor’s financial plan says a lot about how they operate, the plan alone can’t tell you everything. There are also a number of steps you should take to make sure the advisor you choose will work out in the long run.

1. Look out for conflicts of interest.

Verify their compensation method.

Are they Fee Only or do they make a commission off your investments? An advisor’s method of compensation is one of the most important signals about their commitment to your well-being as a client. A Fee Only advisor only accepts payment directly from their client, providing a level of confidence the advice wasn’t given to receive a commission or kick back from an investment company.

Check your advisor’s website or marketing materials.

If you see the terms “Registered Representative” or “securities and advisory services offered through…” it means your advisor has the ability to sell you commissionable products, a potential red flag.

Ask your advisor if they are legally held to the fiduciary standard.

This basically means the advice they give you has to be in your best interest, legally. Knowing your advisor is required to do what’s best for you will go a long way in helping you sleep at night.

2. Make sure your advisor is experienced.

It can be difficult to determine how knowledgeable your advisor is, but you should feel comfortable they have had sufficient experience to gain the necessary knowledge. It is important they have seen bull and bear markets, and can manage investments with a steady hand. So what can you do to ensure they’re up to the task?

Verify their credentials.

A long list of credentials and designations doesn’t in itself mean you have good advisor, but it does demonstrate they have committed themselves to a higher level of learning. There are hundreds of financial credentials (many very easy to obtain), so make sure they have trusted credentials like the CERTIFIED FINANCIAL PLANNER™ (CFP) designation.

Check their history.

Check to see if your advisor has any enforcement actions against them through FINRA’s Broker Check program, or the SEC’s Investment Adviser Public Disclosure website.

Ask them about their education.

Qualified financial advisors are constantly and continuously re-educating. Ask your advisor to tell you about their past education and what they do to stay up on current trends.

Determine their level of investment access.

Can your advisor provide advice on a wide spectrum of investments, or are they restricted to what their Broker/Dealer lets them sell? A good wealth manager won’t be restricted by a Wall Street firm, and may even have access to select investments like DFA (Dimensional Fund Advisor) or other mutual funds not offered to retail investors.

3. Find the right advisor for you.

A great advisor is still only one part of the equation. Just as important is whether or not they’re really a good match for you and your investments. Remember, your well-being should always be paramount, both from your perspective and from theirs.

Find an investment philosophy that fits.

Make sure your advisor has an investment philosophy that you understand and agree with. This is a cornerstone for determining whether or not you have found a good fit. I prefer a philosophy that focuses on factors that are within your control including the amount of risk that is taken, expenses, asset allocation, and diversification.

Protect yourself.

The world of wealth management can be an intimidating one, and it never hurts to exercise caution. Even if you have all the reason in the world to trust your adviser, it’s still smart to take some extra steps to protect yourself and your investments.

Take some security precautions.

Make sure your advisor doesn’t take custody of your assets. Choose an advisor that uses a third party to take custody of the assets, and has ample insurance to protect you from fraud.

Ensure service continuity.

If something happens to you, will your advisor be there to help your spouse, dependents, or beneficiaries? If something happens to your advisor or if they are on vacation is there someone else who can provide service continuity? Anything we missed? What do you like to look for in a financial advisor? Let us know in the comments.

W. Devin Wolf, CFP®
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