Written by: Corey Janoff
This post was originally published on our previous blog website on April 25, 2018 and has since not been revised and/or updated.
After reading last week’s post about why you don’t need a financial advisor, if you still feel compelled to work with one, let’s discuss some of the traits you should look for in a financial advisor. If you are looking for quality, these are some of the traits I feel financial advisors should possess. If you are a client of mine and don’t feel I exhibit all of these, please let me know.
Motivate
I like to assume that most people who elect to work with a financial advisor are somewhat motivated to improve their financial wellness. However, that motivation could wane over time. A good financial advisor will keep you motivated year in and year out.
You may not enjoy finances and you treat meeting with your financial advisor as a necessary evil to reach your financial goals. The financial advisor will give you that little nudge you need to do what’s needed between now and your next meeting.
Educate
The more you understand something, the more likely you are to stay engaged and follow through with it. You don’t need to have a PhD in the subject, but a basic level of comprehension is helpful. A good financial advisor will teach you what you need to know, so you understand why you are doing something. If you understand why, you are more likely to stick with it. If you don’t know why you are investing in stocks, or why you are saving 20% of your income for retirement, you are less likely to stick with it.
The education isn’t a one-time thing, either. It is ongoing. As time goes on, you will likely need a refresher on certain topics. Also, laws and strategies can change and evolve over time.
Make the Complex Simple
I find finances to be pretty straightforward. However, going all the way back to college, I have had upwards of 20,000 hours of study and exposure to the world of finance. I understand most people haven’t even received ten hours of education on finance. So trying to understand the ins and outs of how a retirement account works and why you have a 401k at work but your spouse has a 403b can be overwhelming.
A quality financial advisor will break it down and simplify it into easy-to-understand summaries. Here is how a pre-tax contribution works. Here is how a Roth contribution works. Here is how much you can contribute. Here is how much you should contribute. Here is what you should invest in. This is why.
I’m sure doctors find their specialty and the medications they prescribe to be pretty straightforward. However, most understand the patient does not. The good doctors will give you an easy to understand explanation of how this particular medication will treat your symptoms. You don’t need the full chemical makeup and which cell receptors will react with the various compounds. But a quick, “this is what it will do for you” will make you more likely to stick with the treatment plan.
Instill Confidence
If you don’t feel more confident about your finances after working with a financial advisor, then something probably isn’t right. Now, some people are oblivious and have a false sense of confidence about their finances, so the initial meeting or two with a financial advisor could be a blow to their psyche. However, once a plan starts getting developed, that confidence will grow.
A good financial advisor will help you formulate a plan to reach your financial goals, leading you to feel more confident about your finances. Here’s where you are now, here is where you want to be, and this is how you are going to get there. Follow that path and you will get to your final destination. As a result, you go from a state where you aren’t sure if what you are doing will work, to one where you have confidence that you will achieve the outcome you desire.
Investment Performance
I hate it when a prospective client asks me about investment performance. They are interviewing different advisors to help manage their investments and they want to compare performance. The reason I hate that question isn’t because my clients’ investment performance is sub-par. It is because investment performance is a factor that cannot be controlled. If a financial advisor or money manager touts investment performance and leads you to believe you will realize a particular return rate, run away.
NOBODY CAN CONTROL INVESTMENT PERFORMANCE. You can invest in different asset classes that historically have performed differently than one another, but future performance is unpredictable.
A good financial advisor will not sell a client on investment performance. They probably won’t even mention investment performance. A quality financial advisor focuses on your goals and education and planning. Teaching you what you need to learn and what you need to do to reach your financial goals.
The reason we have review meetings is to ensure you are still on track to reaching your goals and to make necessary adjustments along the way. Part of that is because we can’t control investment performance. If we could control it, we wouldn’t need to review unless your goals changed. If investment performance could be controlled, once you have a plan in place, if you stick to it, you would be guaranteed to reach your goals in the exact time frame outlined in the plan.
Because you cannot control investment performance, you need to review and make adjustments from time to time to keep on track.
Respect for Other Industry Professionals
When you get a second opinion from a doctor, usually the physician isn’t going to undermine the doctor that gave you your initial diagnosis/prognosis. The second doctor may either confirm what the first doctor observed, or may suggest some alternative treatment strategies. However, unless the first doctor is committing malpractice, it is unlikely that a physician will bash one of his or her peers to a patient. You don’t want to burn any bridges.
Similarly, while financial advisors may sometimes find themselves competing with other financial advisors for a client, they should do so with mutual respect. A quality financial advisor understands his or her skill set. He also recognizes his personality or process may not be a perfect fit for every client. A successful advisor-client relationship often boils down to personality fit. A successful financial advisor has a full or almost full practice, so losing one prospect that could be a potential client isn’t a big deal.
If you find a financial advisor making extensive negative comments about another financial advisor, or posting defaming comments on a message board about another individual or company, question what their motive is. Why are they ripping on another professional, who they likely don’t know very well? How can they make a blanket defamatory statement about a particular company, without having extensive experience working with people in that company and knowing their financial planning and investment process? It puts a stain on the entire industry.
If you find a financial advisor hanging out on message boards, posting and responding to numerous comments, there is a good chance they aren’t a very good advisor. If a financial advisor has enough time to do that, they probably don’t have very many clients and they are desperate for new ones. A good financial advisor barely has enough time in the day to respond to questions from his or her own client base. I’m not sure where they find the time to spend a few hours on a message board accessible to the general public.
Summary
Find a financial advisor who motivates you, provides education, instills confidence, and makes the complex simple. Hopefully this helps you when looking for a financial advisor (or assessing the quality of your existing one). People don’t plan to fail, they fail to plan.
