Wednesday, February 3, 2021
Finding the Right Financial Advisor
It should come as no surprise that I believe everyone should have a dedicated Financial Advisor. I will accept that I am biased, being in the industry for close to 5 years now. It is a FACT that people who use a financial advisor retire with more wealth than those that do not. I will also accept the fact that not all Financial Advisors are worth your time. It is that fact that turns many off to the industry, and I do not blame them. One of my favorite clients calls them “Suit Dummies.” I took offense to that term until she assured me that I am not one of them. So, if I know everyone should have a financial advisor and I also know that not all advisors are worth their salt, a tough question remains: How do I find the right Financial Advisor? It may seem like a monumental task, but I am here to help. Let’s get started.
You must at least like the person. Sounds easy to understand, but it can be tricky. If you do not enjoy talking with them at all, it will not work out. We all have those people in our lives. The ones you walk by and for some reason every time you see them, you are running a bit late and can’t chat. Your advisor cannot be that. They should be someone you generally click with on a personal level. While they do not have to be your friend, they should be someone that you could foresee yourself being a friend with. They must relate to you, understand you, empathize with you, and above all, be there for you when you need them. If they only call when they are trying to sell you crap, they should be fired. Furthermore, your advisor should be there to TEACH you about finance. You should NEVER leave a meeting more confused than when you came into it. You should never feel dumb, or helpless around them. My experience has shown me that if an Advisor is not making the world of personal finance more simple for you to understand (which is their job by the way), then there are two potential reasons why. Either they have no clue what they are talking about, or they are trying to screw you…or both.
Investopedia describes a fiduciary as:
A person or organization that acts on behalf of another person or persons, putting their clients’ interest ahead of their own, with a duty to preserve good faith and trust. Being a fiduciary thus requires being bound both legally and ethically to act in the other’s best interests.
Quite simply, your advisor should ALWAYS be a fiduciary. They should ALWAYS act in your best interest. This means they do what is best for you, even if it means they do not get your business. That is a hard pill to swallow for some advisors. I personally have talked people out of buying a product, even ones that would make me a good amount of money, specifically because I knew it was not best for them. This is a must, and you cannot budge on this factor.
This sounds a bit weird, so hear me out. Your financial advisor should have a Money Philosophy. What is a Money Philosophy you may ask? We all have one. Your Money Philosophy might be that you don’t care about money. It may be that you are an extreme saver, or anti-debt, or pro-small business or local spending. A Money Philosophy is what guides you when you make money decisions and your Financial Advisor MUST have one. More importantly, you MUST align with their philosophy. You don’t have to be 100% aligned, but you should be parallel lines, running in the same direction. If you do not agree on simple things such as debt, spending, cash flow, and goals, you will not listen to them and it will not work out. I have seen far too many advisors not have a backbone on anything and simply float in the wind when it comes to philosophy. The sad thing is that it usually means they are in it for one thing, and that is to make money whether it is right for you or not.
Your money goals and current situation encompass more than just your retirement savings or your insurance policies. There is a bigger picture that needs to be addressed and your advisor should be well aware of it. This is where you Robo-advisors and wannabe Instagram or YouTube influencers fall dramatically short. The goal is to grow net-worth, not simply get the best investment returns (although that is important too). There is a bevy of people on the internet giving advice with literally no ethical, moral, or legal responsibility for what they say. This is troubling on many levels. This is why a good financial advisor is extremely important. They are to know your complete picture. Also, you should make them aware of your complete picture, otherwise, how would they know? Your “Millionaire Net-Worth” status will include your investments, savings, your home, and any other assets you may have. For your advisor to do a proper job helping you plan your future, they need to take this Holistic approach to your success. The banks and Robo-advisors simply cannot provide this.
I mentioned Money Philosophy earlier. Your advisor should have a strict philosophy on insurance as well. There are several forms of vital insurance products that you will need in your lifetime. These include life insurance, health insurance, and injury or sickness insurance that protects your income. It SHOULD be your advisor’s goal to get you the most cost-effective form of each of these products. The reason is simple: If an insurance product is stretching your monthly budget too far, you will not maintain it. If you do not maintain it you are putting yourself at risk of financial ruin. This means that your advisor should match you with the right insurance product that FITS YOUR BUDGET as well. For the most part, this does not include Whole Life or Universal Life Insurance products. Those products have their place, but most people can satisfy their insurance needs with simple term life insurance. This goes for health and disability coverage too. If the advisor you chose comes out the gate trying to get you to sign up for expensive insurance products, that should raise red flags.
Having a coherent investment philosophy is extremely important. There are far too many styles of products and accounts to leave this up to chance. If you have an advisor managing your investment accounts, they should have a reason for the funds they recommend. There has to be a purpose to what they chose, and they should be able to articulate it clearly. They should also diversify your investments across many regions (areas of the world) and sectors (industries such as healthcare, technology, manufacturing, etc.). The reason for that is quite simple: No one advisor can predict which part of the world or which industry will dominate in the future. We all have ideas on it, but for the most part, those “guesses” fall short. To bypass this, a range of dynamic funds should be used. Many lazy advisors will put you in one fund, or a couple of funds from one region which can hurt your performance over time. Many will also chase last year’s returns, thinking it will repeat in the coming years. That is rarely the case. Your advisor’s investment philosophy SHOULD NOT dramatically change over time. What may change is the funds they use to accompany their philosophy. They should be following these funds regularly to see if they are achieving their mandates and advising you of changes that may be needed. Anyone can throw darts at a board. Your retirement should not be left to that type of planning.
In any relationship, trust is paramount. What separates bad advisors from great advisors is that they are extremely trustworthy, even when the truth hurts. Sometimes there will be tough conversations to have. Sometimes there will be tough work to do. I recently spent 6 months helping a widow organize her finances after her husband died. I told her it was going to take a while to get this done. I also told her I would be there throughout the process and that she would be immensely relieved when it was all over. Your advisor can’t shy from the work. They can’t duck from the tough questions. They MUST justify their pay. They must stand for something and not be a pliable pawn. They must let their principles guide them on how they conduct business. They must work hard, put in the effort needed, and be there for you when you need them. While it may not be evident if this is the case when you first meet them, you should get a good feeling after the initial meeting. You must ask them the tough questions. Don’t be afraid to poke and prod at their belief system when it comes to personal finance. You MUST remember that you are the client and without you, they don’t exist. That being said, when you find a good one, never let them go! Oh yeah and tell a friend about them too.
Joseph James Francis is a Financial Advisor and Money Coach based in London, Ontario, Canada.
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