Skip links

Qualities to Look for in a Financial Advisor

Qualities to Look for in a Financial AdvisorRecently, my wife Panoo and I updated our estate plan, which we do every year. I had a notary come to the office: a pleasant woman who was excited we were updating our estate plan. She suggested we hold a seminar on it as she had seen the ramifications of not having an estate plan in many people’s lives.

After hearing her enthusiasm, I asked her a simple question, “Do you have your estate plan done?”

She paled. After a moment, she shook her head and said, “You got me.”

I’m not sharing this story to goad you into getting your estate plan in order (although if you don’t have one, you should). Sitting in that office with my wife and the notary, I was struck by a different truth about the financial world: Everyone recognizes a good practice, but few seem to put in the work required to act on it.

When it comes to finding someone to help you handle your wealth, it doesn’t take much to see why this is important. You don’t just want that person to be enthusiastic about good practices. You want his life to be a product of those practices. Life experience speaks exponentially louder than mere book knowledge ever could.

Ask Your Financial Advisor About These Three Practices

It’s all too easy to ignore your own affairs in the industry you work. A plumber doesn’t want to come home and fix a leaky toilet. In the same manner, a financial advisor who’s worked with estate plans all day probably doesn’t want to come home and work on her own plan.

But you want to work with an advisor who believes in the advice she’s giving you. And the easiest way you can tell is if your advisor practices her own recommendations.

Ask your advisor about these three items:

A plan for each of life’s stages.

Financial advisors can range from twenty-somethings getting their foot in the door to sixty-year-old veterans. Depending on your advisor’s age, you might consider getting a better feel for their personal planning ability with these questions: What’s the plan for buying a house? For sending children to college? For retirement?

If your advisor is saving for his children’s college education, he should be able to articulate how close he is to reaching his goal and his plan for saving that money.

The “Big Three” for estate planning.

Your financial advisor should have all three of these in order:

  • A trust or will — specifies how you want your estate divvied up.
  • A Power of Attorney — names someone who will take care of your finances if you become incapable.
  • A health care proxy — gives someone permission to make life-or-death decisions for you.

A passive investment strategy.

You want an advisor who encourages a disciplined approach: one in which you diversify investments and hold on to your investments, no matter how volatile the market gets.

If your advisor suggests a passive strategy for you, you should ask if she uses the same passive strategy herself. It might feel weird asking these kinds of personal questions, but how much can you trust your advisor if she tells you to go passive, yet actively manages her own funds?

If your financial advisor has these three qualities, you’re off to a good start, but there’s one final question you want to ask.

The “F” Word You Want to Hear from Your Advisor

Imagine you’re a king. Nice, isn’t it? Now, imagine a knight comes along. The knight vows to serve you, but only on the stipulation that it serves his interests.

That’s absurd, right? A knight should vow to serve a king because the king is king.

When you trust your wealth to a financial advisor, you are the king in that moment. You should know that your financial advisor has your best interest in mind.

One word can help you know for certain: “Fiduciary.” The fiduciary standard is based on the Investment Advisors Act of 1940. The law stipulates a financial advisor has to act in a client’s best interest.

Recently, the fiduciary standard underwent some changes. As it pertains to retirement planning, even stockbrokers now have to adhere to the fiduciary standard. Beforehand, brokers operated under a suitability standard.

Suitability meant a broker’s decisions had to be “reasonably suitable” for clients. So a broker could suggest higher-priced stocks, even though cheaper stocks were available, all because he could stand to make more money on the higher-priced stock. Both stocks might be suitable for your portfolio, but only one is best.

Suitability still remains in play. The fiduciary standard is only for retirement planning, but it should help investors make a more informed decision.

Make Sure Nothing Gets Left Out

I was very sad when the world lost Prince. Then, a few days later I read an article that suggested Prince might not have had an estate plan. This was all the more reason for me to mourn, because he apparently had a vault containing a hundred unreleased albums. And who knows what’s going to happen to those recordings?

But seriously, how many advisors did that guy likely have?

The reason Prince didn’t have an estate plan might be because he didn’t have a comprehensive picture of his financial life. Don’t let that happen to you. Your financial advisor should discuss your financial strengths and weaknesses with you, then develop a plan for every step of your life.

At FPC, we practice what we preach. We believe in having a plan for all of life’s stages. We use passive investment strategies to get where we want to go. As a Registered Investment Advisor, we operate under the fiduciary standard, so your best interests are always at the forefront of what we do. Contact us today to talk about how we can help you get your affairs in order.