An advisor’s most valuable asset isn’t money in an account. It isn’t returns, percentages, fractions, and proven formulas. The most valuable asset for a financial advisor is much simpler than that. It taps into the very essence of the profession and what is destined to keep it alive,
Trust
Without trust, an advisor won’t be able to meet their clients’ needs. In fact, a study by Vanguard found that 94% of investors would only refer their advisor if they “highly trusted” them. But trust doesn’t come easy.
In a world of jargon, stocks, and taxes people find it difficult to know if they can trust an advisor with their savings, investments, as well as their goals and dreams for the future. Here at TFS, it is our goal to change that.
We want to make financial planning accessible, understandable, and centered on the thing that matters most: you.
So how can you develop trust with your advisor? Our team is going to walk you through some of the most important facets of your financial plan and the questions you can ask within those categories to see if an advisor is the right fit for you.
Understand their working relationship
The way your advisor interacts with clients and structures client communication is a good indication of how you will be treated in their firm.
It is important that you know the process for how they work with clients throughout different stages of the relationship like on-boarding through retirement, for example. Let’s take a look at a few questions to help you gauge an advisor’s working style:
- How often do you meet with clients?
- What is your communication style? (Email, phone, in-person, etc.)
- Do you have an option for virtual appointments?
- What is your client on-boarding process?
- Are they actively reaching out to you or do you have to pick up the phone to call them?
These questions will help point you to how you will interact with your advisor. It will give you an indication as to how they communicate and if that style works for you or not.
Emphasis on comprehensive financial planning
Today, advisors need to do much more than traditional investment management to stand out from the crowd. One way that we exemplify this at TFS is through comprehensive financial planning. This philosophy looks at every aspect of your financial life: investments, risk, taxes, retirement, education planning, estate planning, as well as your goals, dreams, aspirations, values, etc. and makes a plan that enhances each piece. Some questions to ask if you are looking for an advisor that looks at your finances comprehensively are,
- What is the role and importance of my unique financial plan in your process?
- Do you emphasize proactive lifestyle planning?
- How often is the plan updated?
- How do you build relationships with your clients?
These questions aim to capture the heart of a financial planning practice. For us, the financial plan is the cornerstone of your financial landscape. We can’t move to any other part of your finances without it.
Comprehensive financial planning incorporates something that traditional financial planning can’t: emotions. Traditional financial planning and the investment plans that support them tend to leave out the emotional side of decision-making in favor of the logical side. But studies show this process doesn’t usually work. More often than not, people make decisions about money in an emotional way, and without proper care, can subject the plan to errors and mistakes. This is why we combine financial planning with Behavior Financial Advice (BFA), to help arm our clients, and their financial plans for whatever life throws their way.
Know the fees
Fees in the financial world vary from advisor to advisor making it important that you know the type of fee your advisor charges and if that makes sense for you. Some fees you will probably come across are assets under management (AUM), flat fee, retainer, commission, and hourly.
Some planners have a combination of fees depending on the service being provided. Be sure you know exactly what fees your advisor charges in addition to any other investment fees associated with mutual funds, ETFs, stocks, and more. The top questions to ask in this section are,
- How are your fees structured?
- What service do you provide for those fees?
- What can you expect for the fees beyond market returns?
- Do you receive a commission on any financial products, services, or investments?
- Are you a fiduciary and what does that mean to your firm?
When it comes to fees, transparency is key. Your advisor should clearly be able to articulate what their fees are and the services you receive for those fees. If your advisor is fee-only, that just means they are only compensated through client fees, not commissions. You need to know what your advisor charges and how those fees are applied to each aspect of your financial plan.
Their fiduciary status will also be a key indicator if they will be a good fit for you. An advisor who is a fiduciary is legally obligated to act in your best interest. This means that they limit conflicts of interest and seek to provide advice that furthers your goals, not their own.
Learn their investment approach
Investments are a big part of your financial plan so knowing how your advisor approaches investing will help you figure out if you will work well together. Be sure to ask the following
- What is your investment philosophy?
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- You will talk about active vs passive investing. Active investing seeks to time the market and is often focused more on short-term market fluctuations. Critics of this claim know that it is high-cost (management fees, trading fees, etc.) and tax-inefficient. Passive investing, on the other hand, focuses on long-term market growth and focuses on market trends as opposed to fluctuations. This type of investing can be lower cost and may be more tax efficient but requires patience to work properly. Passive investing doesn’t chase the highest returns, in reality you might not see as much movement at all. The important thing is that your investments are set up in a way that supports your goals long-term.
- What type of investments do you recommend?
- This question is a good follow-up to their investment strategy. Their choice in investments is a good indication of their overall investment style. It could range anywhere from mutual funds, individual stocks, ETFs, and more. If you want, ask for further clarification on why they focus on particular investment vehicles.
- Do you have a financial plan that drives the investment portfolio?
- How do you balance returns and risk in concert with my financial goals/plan?
- How does my risk tolerance impact my investment portfolio?
- How do you help develop my portfolio to address both short-term and long-term goals?
- Is the investment model tailored to my unique needs or is it a pre-existing model?
Investing involves risk including the potential loss of principle. No investment strategy can guarantee a profit or protect against loss in periods of declining value. Past performance is no guarantee of future results. Please note that individual situations can vary. Therefore, the information presented here should only be relied upon when coordinated with individual professional advice.
Trust your gut
Sometimes your gut reaction should be the deciding factor. You have to feel confident and comfortable with your advisor if you really want to have a plan that exemplifies your goals and values.
- What was your reaction after the meeting? Did you feel heard? How well did you really connect?
- Are you confident in their plan and process?
- Do you feel the price is fair for the value you get?
- Will the advisor really listen to your needs and goals before moving money around?
Working with an advisor you trust is the key to developing a strong financial plan. Finding an advisor you can work with on a truly collaborative basis can bring rewards for years to come. Want our advice? When you are looking for a new advisor, be picky. You should work with someone who can answer all of your questions with confidence and grace. Be willing to ask the tough questions and really evaluate an advisor before doing business with them.
Our team loves answering your financial planning questions. Schedule a time to talk with us so we can answer yours.
