In short, a financial advisor is a financial professional that provides specific financial advice and guidance to clients. This may include a range of areas from financial planning, managing investment portfolios, estate, tax or insurance guidance. In general, while advisors are thought of in terms of working with private individuals, many advisors also provide services to institutional entities as well. These could be businesses, charities, non-profits, or pension funds to name a few.
It’s important to understand that the term “financial advisor” tends to be a catch-all that can be used by many people performing a myriad of different functions. On one hand, “financial advisor” may be used as a title for somebody that is basically a financial product sales professional. While they may offer some level of advice, their primary goal is often to place you within one of their financial products even if it isn’t necessarily in your long term best interest. On the other hand, a financial advisor may be somebody that provides a comprehensive strategic wealth process to their clients. These folks are typically fiduciaries, meaning they are ethically and legally bound to place a client’s best interest at the heart of any advice they provide.
A quick Google search will show you that there are literally thousands of financial advisors out there. So, if you are thinking of working with a financial advisor, what are the characteristics you should look for?
In my opinion, you want to work with an advisor that is a fiduciary. The best way to find this out is to simply ask. If they are a fiduciary, they’ll tell you. If not, they may try to skirt around the question or talk about something called “Regulation Best Interest.” Additionally, if an advisor charges a flat fee, or a percentage of your assets that they manage, they are usually bound by the fiduciary standard. If the advisor charges a commission for any financial transaction, there is a good chance they aren’t held to the same fiduciary standard.
Next, you want to work with an advisor that provides a valuable, robust process in helping you reach your goals. This is important because you want to ensure that your advisor has the tools and process in place to create a tailored wealth strategy for you as a client. If there isn’t a robust process in place it is likely that one of two undesirable things are happening: 1) they are just winging it, not good if we’re talking about your financial future and security, or 2) they are providing you a cookie cutter solution no different from the rest of their clients.
Finally, you want to work with an advisor that has integrity. In my view, integrity is the key ingredient in building trust, and trust is the most important ingredient in any advisory relationship. If you sense that a potential or current advisor lacks integrity, that may be a red flag to find somebody else. After all, we’re not talking about picking out a new TV. If you pick the wrong TV from Best Buy the most you’ll suffer is inconvenience and maybe wasted a chunk of change. If you pick the wrong advisor, it may have long lasting consequences on your financial health.
There are a whole range of people that call themselves “financial advisors,” so if you’re looking for one, be sure to work with somebody that is a fiduciary, has a robust process, and possesses high levels of integrity. At the end of the day, trust your gut. If an advisor seems to be checking off all the boxes, but something seems “off,” trust your gut and go with somebody else.