Shopping for a Financial Advisor

One of the most popular New Year resolutions is to get your financial house in order. Understanding your finances, learning about the steps you should be taking, and then putting an action plan to work, are critical steps toward that worthwhile resolution. This is where hiring a financial advisor can make all the difference. 

When you’re thinking about hiring a financial advisor, it’s important that you do your due diligence to help make sure you and your advisor are well matched. Ideally, you and your advisor are both looking to establish a very long-term relationship, and part of that involves being very open and honest about your expectations, and asking probing questions. It’s also very important that your advisor be forthcoming with their expectations. Be sure to include the following questions in your vetting process. 

1. Are you a fiduciary? 

An advisor who is a fiduciary is legally required to put your interests ahead of their own, and ahead of the interests of their employer.

2. How are you compensated?

There are a few compensation models in the industry, and you have a right to know how you will be paying for the services you will receive. 

Commission Based – This “eat what you kill” compensation model means that your advisor only gets paid when a transaction takes place, and it had been the traditional model for decades. It has fallen out of favor with both clients and advisors because of the obvious conflict of interest it presents. 

Fee Based – Most advisors now operate under a fee-based structure. What this means is that they charge a stated fee for providing advice, as opposed to earning a sales commission. This fee is often a percentage of the assets they manage, but could also be hourly depending on the scope of work. Since the fee is assessed as a percentage of your balance, it changes as your accounts grow or shrink, and you and your advisor now have the same goal; to be careful stewards of your assets over time.  

Because certain important products, like life insurance, are inherently commission-based, a fee-based advisor has the latitude to provide these solutions as well. Here, again, it is important to understand if the advisor is a fiduciary.

3. Are you independent?

It’s important to consider whether the advisor works for a company with proprietary products to sell. Generally this will be common with insurance and mutual fund companies. Even with the best intentions, your advisor may be limited to, or incentivized for using, their employer’s products.

When the only tool in your toolbelt is a hammer, every problem starts to look like a nail. An independent advisor will generally have access to a universe of products, and be beholden only to you.  

4. Are you, or members of your team, a CFP®?

A Certified Financial Planner® professional is an advisor who has been through a rigorous education and examination process beyond the regular licensing requirements for the industry. A CFP® has demonstrated a level of proficiency across a wide range of planning topics, and has committed to a higher code of ethics. If your advisor is not a CFP® it could be beneficial to you that they are, at least, working directly with one in formulating their recommendations.

5. How much education can I expect from you?

The financial industry is full of jargon and acronyms. Every client has a different level of financial experience, and a good advisor will act as an educator to make sure you understand their recommendations. Most advisors don’t intend to talk over your head, but if you find them using language that you’re not familiar with, don’t be shy about asking for terms to be defined or strategies to be better explained. 

Good communication is the cornerstone of any relationship, and it’s crucial that you and your advisor are speaking the same language.  

6. How long have you been in practice?

There is no substitute for experience. Every advisor can look like a rock star during good times, but it’s important to know that they have been battle-tested and have the temperament to keep their head even if you’re losing yours, when volatility strikes.  In order to help shepherd you through the inevitable periods of uncertainty, they need to have been there before, and know the way through. 

Your relationship with your financial advisor can be the key to your financial success. It’s important that you feel comfortable asking them any questions, and that you’re satisfied with the answers they provide. When you find a good match, work closely with your advisor, and you’ll be well on your way to keeping your New Year resolution.  

Stephen Kyne CFP® is a Partner at Sterling Manor Financial in Saratoga Springs, and Rhinebeck.Securities offered through Cadaret, Grant & Co., Inc. Member FINRA/SIPC. Advisory services offered through Sterling Manor Financial, LLC, or Cadaret Grant & Co., Inc, SEC registered investment advisors. Sterling Manor Financial and Cadaret, Grant are separate entities.