Author: Mike McGrath
When choosing a financial advisor, the best first step is to determine what kind of help you need. Do you need help with budgeting, life insurance, investment management, overall planning, or some other part of your financial life? Determining this upfront, you can narrow down the type of advisor you need to work with. The Advisor Selection Checklist created by EP Wealth Advisors can provide a framework for your decisions. It offers a summary of an advisor’s potential capabilities.
What Capabilities Do You Need?
My recommendation is to work with a holistic advisor who has the academic and practical background to address your broader financial picture. The reality of our financial lives is that each element is interdependent on the other elements. Elements to consider may include:
- Employee benefits and stock options analysis – Help with informed decisions on which choices are most appropriate for your circumstances, and how you can maximize the potential value of your options.
- Real estate analysis – Objective views on residences, rental properties, and investment possibilities.
- Social Security analysis – Maximizing your family’s social security benefits through a strategic approach.
- College funding – From 529 savings plans to scholarships and grants, analyzing your options early can make a significant difference.
- Small Business Financial Planning – An expert can look for synergistic ways to integrate your business and personal planning, including tax reduction and enhancing the value of your business.
- Insurance analysis – How much your family needs to buy is related to your income, your overall net worth, the potential of inheritances in the future, and myriad other items.
- Medicare analysis – From Original Medicare to Medicare Advantage and prescription drug coverage, navigating the alternatives available is easier with professional support.
- Financial planning predictive modeling (Monte Carlo analysis) – Formulating investing strategy based on sophisticated statistical models of the most likely outcomes.
- Individual stocks and bond strategies – Essential insights for selective investments in equities and debt instruments.
- Liquid investments – Determining the amount and type of easily accessible reserves appropriate for your lifestyle and anticipated spending needs.
Ask About Compensation and Credentials
Once you’ve identified the types of expertise you’ll need, the next step in determining the right advisor is to learn how they get paid. A few questions are:
- Do they receive commissions if you buy a specific product, such as insurance and investment products?
- Are they brokers who make a commission based on your trading activity?
- Are they fee-based, or fee-only fiduciary advisors who charge a fee based on the assets you ask them to manage for you?
- Can they simply charge you an hourly rate?
Knowing their financial incentives and interests is key to avoiding misunderstandings later.
Another element of selecting a financial advisor is their knowledge. Do they have a robust academic background specifically in the field of financial planning? Are they a CERTIFIED FINANCIAL PLANNER™ (CFP®), Chartered Life Underwriter® (CLU), Chartered Financial Analyst® (CFA®), etc.? Related to the academic base, how have they wrestled with challenging markets, difficult life situations, and changes in the economy? The combination of academic excellence and technical knowledge with street cred is hard to replicate and thus advantageous to you.
Related to the education and experience of the advisor is the depth and breadth of the services behind them. I would certainly recommend an advisor who has the requisite resources – both in-house and outsourced –to serve you well. It is already a Herculean task to do the job of a high-quality financial advisor. In some cases, it can become a harder task to accomplish when working by yourself.
You may consider whether the advisor you’re considering offers:
- A dedicated financial planning department that can help tailor a plan to your needs.
- A dedicated investment management team.
- Active and passive investment options to match your investing strategy.
- In-house research by CFA charterholders to guide your decisions.
- Institutional research for in-depth analysis of your options.
- Decisions made by an investment committee, such as the 7-member EP Wealth Advisors team, for the benefits of diverse viewpoints.
Also, consider any other services an advisor may provide that attest to the caliber of their operations. Transparent performance reporting helps you clearly see whether they’re adding value to your portfolio. Quarterly reviews keep you up to date on your progress toward your goals. And capabilities such as a personal website, real-time financial aggregator, investor-education events and newsletters, can offer engaging opportunities that can educate clients.
Is There a Personal Connection?
Most importantly, find someone you like and trust. This might be as simple as a gut feeling, but if you are going to share your life’s fears and dreams and nothing short of your soul with someone, you would do much better to go with a person and firm you truly feel has your back as you walk through life’s peaks and valleys. Key points to consider are whether you have the sense that the advisor cares about you, your family and your goals; whether they’re responsive to your concerns and forthcoming with the answers you’re looking for; and also whether they’re proactive in suggesting ways to achieve your goals beyond those you already were aware of.
Benefits of Working With an Advisor
While there can be to working with an advisor, most of these benefits depend on your situation and what you want out of that relationship. As financial planning moves from tax planning to insurance planning to investment management to estate and retirement planning, the lists of things to know and understand are seemingly endless. Therefore, the main benefit of a good financial advisor is that you not only will gain the knowledge of these subjects, but will be given the wisdom that may be used to make more informed decisions. In addition, as many of us want to see whatever wealth we build in this life preserved to benefit others, a financial advisor may also look to the longest term and guide you to and through charitable-giving strategies as well as educating and mentoring the next generation on how to best steward what they have been given while still being true to their own identity.
Lastly, as we all know how life can throw us the proverbial curve ball from time to time, a competent, conscientious advisor can help us walk the sometimes-difficult path of illness, divorce, caring for aging parents, and other circumstances.
Ultimately, an advisor can become a trusted and caring friend.
Finding a Financial Advisor
There are several great initial resources for finding an advisor if you are beginning from scratch. The first would be the CFP Board. This is a good resource to elaborate on what I have written here and begin a search for an advisor who may be a good fit for you.
If you are looking for a fee-only advisor specifically, NAPFA, the National Association of Professional Financial Advisors, is a great resource.
That said, the best resource for finding an advisor you can trust is likely from a friend or family member you trust. Having a personal connection walking into the first meeting is powerful in that it skips past the usual surface discussion and allows enough trust in the beginning of the conversation to get to the heart of the matter: what you need, what concerns you, and what you want that relationship to look like. Of course, my colleagues and I at EP Wealth Advisors are also always available to answer your questions and discuss the criteria that can help you decide on the advisor best for you. Please feel free to contact us at any time.
The opinions expressed in this blog are solely of the author, an employee of EP Wealth Advisors (“EPWA”). The services and selection criteria referenced here are intended to highlight the capabilities of EP Wealth Advisors and its staff. The subjects, referenced directly or indirectly, are not intended to be regarded as a comprehensive assessment of all categories, requirements, or qualifications that a client or prospective client should consider when assessing or comparing Financial Advisors and/or Firms. They are intended to serve as a tool containing general information that should assist you in the development of subsequent discussions. Content does not involve the rendering of personalized investment advice nor is it intended to supplement professional individualized advice. There are factors that are particular to your unique situation and/or that may be important to you that were not referenced in this blog post and/or considered by the author. EPWA makes no representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information presented herein. There is no guarantee or warrantee that hiring or working with a EPWA or any other Financial Planner, Financial Advisor and/or Advisory Firm will increase the probability of investment success or that you will achieve higher performance or results, nor does it guarantee that you will obtain better overall client experience. All investments and investment strategies or subject to profit and loss and the risk of investment loss can never be eliminated. EPWA is not in the business of providing tax or legal services or advice. Always consult your tax advisor and/or attorney regarding your specific situation.