Episode 10: The Questions You Should Ask Yourself and a Financial Advisor
What should a person consider when debating whether to work with a financial advisor?
A large number of people currently with a financial advisor are UNHAPPY with their current advisor. So, we come back to the question, why would you hire a financial planner?
Some of that unhappines may come from misplaced expectations. When Carl sits down with a prospective client, he’s meeting with people who’ve had some level of success building wealth. Their decision to meet with an advisor is often driven by life getting too complex or the consequences get bigger. You must decide if you’re going to figure it out on your own or if you’re going to get help.
So Carl asks clients, “Why now? What do you expect out of a relationship with a financial advisor?” His experience has shown that people are often looking for someone to tell them what to do with their investments, viewing the advisor as someone who’s job is to find them the best investments.
The best investments is a tricky term. “The best” could mean two different things to two different people based on individual goals. You may find yourself in interesting conversations with a financial planner asking about goals and values, to put your investment requests in context.
Bill had a new client meeting with a married couple, and in the course of opening the meeting, they pulled out their statements, asking if they’re in the right investments. Bill believes that’s the mindset of a majority of investors. The goal is often expressed as, “I just want to continue to live the life I’m living today.” This triggers the question of “right investments.” But that question is irrelevant if you don’t understand where you’re at today.
If your financial advisor isn’t asking those questions, then it’s difficult to see how they’re providing you with investment suggestions. One of the things people should realize is that we’re going in to advisors asking for a prescription, sometimes after a self-diagnosis but often after no diagnosis, not realizing that we don’t have any clue about what’s actually appropriate investment wise.
Right now, many people are approaching investing like triage. People are looking to address their recent losses, making it difficult to talk about values and goals when they’re focused on investment losses. Their purpose is to stop the bleeding first, then come back and put together a comprehensive plan later. While triage is an option, you run the risk of lowering your yields because, without a plan, your available options come with a low rate of return they come with.
Then there’s the question of what people are calling themselves: financial planners, financial advisors, personal financial specialist, etc. The first step is understanding what you want. You want arelationship with someone you can trust who can help you place all your financial decisions in context. It’s a holistic approach, asking how we fit all those pieces together. It could be you personally or someone you hire, like an hourly financial planner. If you need assistance finding one, send us an email to carl@behaviorgap.com or a tweet to @behaviorgap.
To start your search, consider what kind of compensation structure you’re comfortable with. You want to know that person is working for you and not some other entity. This issue doesn’t automatically block someone earning commissions, it only means you’re aware, through disclosure, of how that person is compensated.
It comes down to finding someone you trust, with part of that trust relying on the individual’s compentency and whether they view providing financial advice as a profession. There must not be conflicts and they must look out for your best interests, again something that can be achieved through disclosure. It’s so hard to nail down the trust issue, because we can’t offer a blanket statement about who is safe based on a job title or organization certification.
While industry designations can be important, sometimes they aren’t worth the paper they’re printed on. The philosophy or the approach of the financial planner or advisor should carry more weight with someone seeking an advisor. Unfortunately, there’s not a checklist that ensure you’ll find the perfect person to stay with for the rest of your life.
You can start by asking your neighbors, your friends, your CPA, and your attorney who they trust. When recommending other advisors, Carl asks himself, “If I were to die, who do I trust enough to send my wife to?” Some of the important questions you should raise when interviewing potential people include:
- How are you compensated?
- Are you regulated by the SEC?
- Are you required to disclose your conflicts to me?
There’s alot involved in finding someone you trust. Again, if you want help finding that someone, you can email us at carl@behaviorgap.com or tweet @behaviorgap. Also, feel free to contact us at the same locations if you have a financial planner or advisor you believe is worth acknowledging.
