There is no shortage of information on the web on how to find an advisor. For the most part, I find most helpful resources are the ones that they steer individuals towards industry groups like NAPFA; but on the whole the advice in articles and questionnaires is largely not useful to those preparing to find and interview an advisor. No amount of information or questions can flip the information balance to a consumers favor, and most do not educate them enough to make the questions stick.
The best way I’ve found to know if an advisor is a fit is to engage them and observe how they practice. Sure, this defeats the purpose of finding faults with a prospective advisor, but let’s face it, most select their advisor from a small list and make their selection based on feelings, not the responses of the advisors handpicked client recommendations.
The reality is your interviewing to determine if this is a relationship that meets your needs should begin at the engagement, it shouldn’t end there.
In my experiences working with several types of advisors, there are a few common characteristics to remain alert for:
Busy work. As a believer in as-needed financial planning, I don’t advocate paying for unnecessary advice, or acting just to act. If there’s a reason to do something then you should, but if it’s not broke, don’t fix it.
Be wary of needing to meet with your advisor too often; your finances are important, but they are not everything. Another area to watch for busy work is with constantly changing investment choices. This may be the financial equivalent to paying to dig holes simply to fill them back in.
Yes, an annual review is as worthwhile an annual physical, even if there are no problems or actions that come from it. But, if the outcome of a meeting is always to change from one fund to another, then you should question why the fund you purchased was not a quality long-term investment. Don’t settle for just any answer; try to find out if there is a deeper reason you are always meeting or moving your funds. Even the process of asking when you aren’t confident you will understand the response keeps your advisor on their toes, and they will remember in future that you require a deeper reason before acting just to act.
The grass is always greener. This is a variation of the above where there is always a better investment product, a better manager, or a better strategy. The advisors value is still not in providing a check-up to look for problems, but in being a gatekeeper to new and more exciting products.
New products come and go, while investment principles have stayed the same. A new feature or product may sound great from the sales side, but they don’t always perform as advertised. Question if constant change is truly part of a long-term plan.
“I may not be right, but I’m never not sure.” Advisors don’t know it all. Many spend a significant portion of their time in client meetings and marketing and they don’t have much left over to keep up on the vast number of fields that impact their clients.
From my past experiences, this attitude can be the most difficult to uncover, as well as the most damaging. Despite being a trusted advisor, it can be easy to create internal beliefs, and answer questions based on these beliefs rather than facts.
If your advisor works at a small firm or who works on their own, find out how they stay current. Make sure a professional organization like NAPFA is mentioned, and dismiss any answers that include sales conferences put on by their brokerage firm; these are little more than pep rallies for brokerages sales forces and the “education” portion is often run by product sponsors.
If you do need advice or resources prior to engaging an advisor, look to media or professional organizations like NAPFA for tools. Just don’t believe those tools will relieve you of responsibilities to engage in an ongoing interview with the advisor you choose.
The preceding blog was originally published by Forbes. To view the original blog please visit our blog at Forbes. http://www.forbes.com/sites/feeonlyplanner/
