What to Look For In a Financial Advisor

When you’re looking for a financial advisor, you might find that this industry is constantly changing.

Robo-advisors are becoming a more popular choice for tech-savvy investors. Something to keep in mind, however, is that these bots are strictly mathematical. If you are looking for a relationship with your advisors, these robots won’t make the cut. Bots don’t know how to deal with the loss of a loved one, a child getting married, older parents needing your financial support, or your charitable desires.

Before you begin your search, think through your reasoning for finding an advisor and what you hope they can do for you. Never underestimate the seriousness of this task. Who you trust with your money and your future is a big decision that should never be taken lightly.

Once you’ve done some soul-searching, start off by asking your friends and family for recommendations. You can even reach out to other professionals that you trust and ask for a few names. Make a list, and start your research. Weed out the lousy candidates and prepare to set up a long meeting with each of the remaining prospects.

Here are five important items that you should know about your advisor before you hire them:

The Portfolio Management Process

Look at their asset allocation models and how they execute them. Do they use a home office, customized allocations, or a mix of the two? The more assets you have to invest, the more complicated and unique your plan might be. Think through your own situation. Do you have kids in college? What about a special-needs family member? Some couples have a large exposure to one stock. The more variables you add to your situation, the more customizable you need your asset allocation plan to be. Look for an advisor that will look at your portfolio holistically and one that has handled complex situations before.  

Financial-Planning Capabilities

While this item might not be your top priority, lots of people find it easier to tackle various financial situations once their foundational finances are sorted out. Complexities, like funding college, charitable giving, and planning for retirement can be overwhelming before the basics are taken care of. You don’t need an expert in each of these categories, but your advisor should be comfortable giving recommendations or referrals to others who are.

Custody Arrangements

Who is their custodian? This is an important one. You should know who is going to hold your money.

Registered investment advisors (RIAs) are required to use a third-party custodian like TD Ameritrade, Fidelity Investments, or Charles Schwab. For bigger firms like Bank of America and Morgan Stanley, advisors will use their company’s custodian. In some cases, this can create conflicts of interest as advisors promote and design compensation plans around their companies’ products. 

Fiduciary Versus Suitability Standard

Fiduciary advisors are bound to seek out and act in the best interest of their clients. They are also required to communicate any conflicts of interest that might not be the best option for their client. All RIAs are legally required to acts as fiduciaries, while other firms might choose to follow this standard voluntarily.

Advisors who follow the suitability standard do not have to disclose conflicts of interest to their clients. Nor are they required to mention cheaper or more tax-efficient options that might save their client money and heartache in the long-run.

Depending on your preferences and situation, both can be a viable option. When in doubt, however, always go with a fiduciary.


Financial advisors tend to use one of three pricing models. Either they will charge a percentage of the assets they manage or total asserts they advise, charge project-based fees, or earn a commission based on the number of products they sell.

Fee-based advisors generally charge a certain percentage of their client’s portfolios and often give discounts for family referrals or larger accounts. Advisors who use the project-based model generally charge an hourly fee for each project they take on. Commissioned advisors lean towards the salesmen’s side of pricing. Their goal is to sell mutual funds, annuities, and alternatives to generate large commissions.

You should fully understand the advisor’s billing method after your initial meeting with them. If they are unprepared to discuss billing, you should probably walk away and look at different options. If they pass the test in the first meeting, feel free to schedule a second one.

During your second visit, you will want to go over a detailed explanation of your finances. Who will manage your money? Go over any of your family’s financial planning issues. The biggest thing to watch out for is how much they know. Spending time with someone helps you to learn whether or not they are an expert and know what they’re talking about. Ask a lot of questions.

Closing Thoughts

Depending on how you perceive their explanations, you will need to determine if this relationship is going to work long-term. Consider your future generations in this decision. After all, they will need to deal with this advisor once you’re gone. Also, look into the technology and other resources they use. Are they investing in good technology to run their business and manage your affairs efficiently and effectively? Technology should be an important factor. The advisor should be excited about technological advancements and how it can benefit both of you.

The advisor’s approach and view of technology can say a lot about how he/she will approach your portfolio. As advisors age, their adaptiveness to technology is more difficult for them. Just like anyone, advisors also like to be comfortable and stick to methods they know. For advisors who have been successful in their practice, they might be unwilling to tackle your problems with the latest technology.

At the end of the day, you should choose an advisor whose management process, philosophy, fee structure, and business approach make sense to you. And most importantly, they need to be someone you can trust. In order for this relationship to work, you have to be open and honest with your advisor the way you would with a medical physician. Look for someone you are willing to build a deep relationship with and who will help you navigate your life with purpose.

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