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When it comes to finding the right team to manage your finances, trust is everything.
But trust is more than just a gut feeling.
There are certain traits and characteristics you may want to look for to help you decide whether you should trust an advisor to help with your specific needs. But, like many things in life, trust is subjective and sometimes you just have to go with your gut instinct.
Aside from instinct, we believe your journey should begin with asking smart questions. But, how do you know what questions to ask?
Most people don't have experience constantly interviewing financial advisors. That's why a checklist of questions can be helpful from the start.
But there are additional keys to consider to find a financial advisor who is required by law to always put your interest first and one who has the competence to give you great advice in the first place.
While trust is subjective, here's how to potentially improve the chances of finding a financial advisor you can trust.
Ensure Your Financial Advisor Practices Under the Fiduciary Standard
When screening potential registered investment advisors or financial planners, the first thing you may want to determine is if they are a fiduciary.
The test should be an easy one—an advisor who is truly bound by a fiduciary standard will be willing to sign a fiduciary oath.
Signing a fiduciary statement is critical because embodying its tenets supersedes a simple statement or promise. An advisor who follows a fiduciary standard is bound by law to act in your best interest.
There are other standards of practice that don’t require strict adherence to the fiduciary standard, such as the new “Regulation Best Interest”, or Reg BI, that brokers are held to.
The name can be confusing because there are four key components that brokers must adhere to including 1) Disclosure obligation; 2) Care obligation; 3) Conflict of Interest Obligation; and 4) Compliance Obligation. You can learn more here. It may be difficult for investors to understand the difference between a financial advisor serving as a fiduciary and a broker serving under the "Regulation Best Interest" standard.
Check Out Their Specializations and Credentials
Financial planners are not one-size-fits-all. Personal finance is a big topic and you want your advisor to be well-versed to support your specific set of needs.
Are you in your 50s or 60s looking for an advisor who specializes in retirement income planning?
Are you airline pilot?
Perhaps you're a business owner in need of an exit strategy.
Maybe you're a doctor who wants to start saving but also chip away at your massive student debt.
Guess what?
There’s an advisor out there for you. At Covenant Wealth Advisors, we specialize in in retirement income planning and investing.
Credentials can also be an indication of the advisor’s expertise and practice focus.
The CFP® is a well known designation within the industry.
A Certified Financial Planner™ will have a broad knowledge of all areas of financial planning and have demonstrated that competence through education, experience, and testing.
A Certified Public Accountant or CPA will bring additional tax knowledge which is paramount to sound financial advice.
There are specific credentials for almost any financial planning specialization out there including divorce, college planning, and estate planning.
An advisor may also be a member of professional associations that speak to their focus.
For example, I'm a member of the National Association of Personal Financial Advisors (NAPFA) because we believe that clients are best served by fee-only Certified Financial Planners. We also believe that our advisors and our clients benefit from an association with other like-minded planners.
Peruse their Online Materials
A great way to get a feel for your potential advisors before speaking with them in person or over the phone is to take a look at their digital presence.
Do they have a website? Take a look at their blog.
What topics do they cover? Do any apply to you?
As you read through their communication materials, does it feel like they are speaking to you about your needs or to someone else?
Remember, this is how an advisor is choosing to communicate to the public and potential clients. If it doesn’t seem like they are communicating with you, it’s probably better to check out another advisor whose vision may be more closely aligned with yours.
Many advisors will offer free resources in the form of checklists or questionnaires. For example, we post financial videos to help individuals better digest information.
You'll also want to review the advisor's form ADV Part 2A and 2B. This document will reveal the advisor's business practices and any potential conflicts of interest.
If you think you may be interested in working with a particular advisor, try one out to see how they approach certain topics. If the topic is what you need and their approach resonates with you, then it’s an indication that you may work well together.
Set Up an Interview
Beyond the more technical elements of the advisor/client relationship like competence and practice focus, there still has to be a certain amount of chemistry to make it work.
Most advisors offer a free phone call or Zoom session for prospective clients.
Once you've done your research and feel that it's worth pursuing, talk to them to get a feel for them, their process, and to see if you would be a good fit.
This also gives you a good opportunity to ask them questions about their fiduciary responsibility and expertise.
During this interview, there are some key indicators to watch for.
Does the advisor appear genuinely interested in you? If so, this is a sign that they think you may be a good fit for them. You want an advisor to feel that way because if they don’t see you as a good fit, they will likely not give you the attention you deserve.
Does it feel like the advisor is trying to sell you from the very first conversation? The initial meeting should be about establishing a mutual relationship. That’s difficult if the advisor seems intent on selling you something at the onset.
Are they asking inquiring questions to better understand your situation and financial goals? A good advisor will use this first meeting to better understand you, so they can know if they are best suited to help you.
Does the advisor speak in your terms or use industry jargon you can’t understand? A well-meaning, smart, and competent advisor that doesn’t effectively communicate with you can’t provide the same value as one that does. You may not understand the intricate details of what they do, but they should be able to explain it to you in simple enough terms that you don’t feel lost.
Get a Financial Plan Before You Commit to Investing
A lot of financial advisors say they provide comprehensive financial advice, but end up only wanting to sell you mutual funds or insurance products.
While investment advice and insurance is one piece of the pie, the right financial advisor should provide advice on your total situation. Moreover, you may be nervous handing over your million dollar plus portfolio to an advisor you don't know very well.
That's why we advise individuals to purchase a comprehensive financial plan from the advisor they choose first. A plan can help you answer a lot of questions such as:
When and how can I retire?
How can I reduce taxes?
When should I take social security?
Which accounts should I withdraw from first in retirement?
The financial planning process can also give you the chance to get to know your financial advisor before you actually commit to having them manage all of your money. This face-to-face time may be instrumental in helping you find a financial advisor you can trust.
For example, at Covenant Wealth Advisors we often design a customized financial plan before we ever invest a dollar. The financial planning experience may last three to four meetings over the course of four to eight weeks or more. We even provide a guarantee which means that we will refund the fee you paid if you are unhappy with our advice or services within the first six months of signing the planning agreement.
Aside from the personalized advice clients receive, we've also found that financial planning gives clients a chance see how we work and communicate prior to making a long-term commitment.
Starting with a shorter term commitment through the development of a financial plan may give you time to determine if you trust the advisor or not.
Trust Yourself
If you follow the suggestions mentioned above the last step is to make your decision.
This requires that you rely on your own judgment.
Finding an advisor is a lot like finding the love of your life. It's very subjective and if it doesn’t feel right, it probably isn’t. The advisor needs to show a genuine interest in helping you and leave you with a good feeling about working with them. But, that only scratches the surface and doesn't guarantee results.
Even if they hit all the right buttons outlined above, if you don’t feel comfortable with them, it’s ok to keep looking. After all, it's your financial life.
Give Us a Call
If you are looking for an advisor you can trust to help you with your retirement income plan, we would love to hear from you. Give us a call and we will be glad to answer any questions you have.
About Mark Fonville, CFP®
He is the President of Covenant Wealth Advisors and a Certified Financial Planner™ professional specializing in retirement income planning, tax planning, and investment management. Mark has been featured in the New York Times, Barron's, Kiplinger Magazine, and the Chicago Tribune.
Disclosures:
Covenant Wealth Advisors is a registered investment advisor with offices in Richmond and Williamsburg, VA. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital.
The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place.