“When clients pay attention to noise, we call it dumb. When advisors do it, we call it research.” – Carl Richards
I feel that most investors should be able to manage their investments on their own. The playing field has been leveled in the past few decades, giving individual investors the ability to handle their own portfolios on without sacrificing performance or their goals. This can be accomplished while paying low fees and keeping things extremely simple.
But for some people, there are simply more important things that they need to focus on. Or they just don’t have the inclination to spend the time needed to manage their money. And some have built their wealth to a level that it now makes sense to bring in a professional to help them make better decisions.
I preach using common sense to keep things simple and build wealth. Whatever the reason for seeking outside help, you can use a common sense approach to find a trustworthy financial advisor. You just have to be aware of what to look for.
I’ve covered this topic in the past (How to Choose a Financial Advisor), but I constantly hear or read horror stories about unnecessarily complex investments, high fees and terrible advice people are given and most don’t know any better.
So I feel it makes sense to make some additions to the list of qualities to look for in a financial advisor.
WHAT’S A REAL FINANCIAL ADVISOR?
Carl Richards (Lessons from The Behavior Gap) is a former financial advisor who now helps educate other financial advisors through the BAM Alliance. He shares his thoughts through the Bucks Blog at the New York Times, on his website (Behaviorgap.com) and on Twitter (@behaviorgap).
He recently shared a series of tweets on what constitutes being a real financial advisor. He says a real financial advisor:
1. Is a professional. With some demonstrated commitment to education (CFP, CFA, CPA, etc.).
2. Is clear and open about potential conflicts of interest.
3. Only gets compensation from the clients they work for, not from product vendors.
4. Listens more than they talk. Taking the time to diagnose before prescribing.
5. Is pretty boring. Able to stick with a disciplined plan over a long period of time.
6. Is someone you can trust (of course while verifying).
7. Puts your interests first. Period.
8. Is independent.
9. Asks really great questions.
10. Is worthy of trust.
11. Makes things as simple as possible.
12. Knows this is your money, your goals, and your plan.
13. Focuses on things they can control.
He also stated 3 Reasons to have an advisor:
1. To help me clarify my goals.
2. To remind me of my goals.
3. To stand between me and stupid.
If you currently have a financial advisor or are in the market for one, take a look at these lists and see if they line up with what you’ve been told.
You’ll notice that none of this has anything to do with picking stocks, timing the market, rising interest rates or taxes. Sure, there are specific tactics that need to be instituted within your portfolio that go beyond what Carl has laid out here. But you can see what I view as the important factors when looking for someone to help you create an investment plan over the long-term.
Beyond focusing on a goals-based approach to your finances, a good advisor should be able to help you make good decisions in times of stress and confusion. It’s easy to give advice when things are going well in the markets or your life. When things get complicated, that’s when you need your financial advisor to steer you in the right direction.
This drawing from behaviorgap.com sums up the need for having a better decision-maker in your corner because it’s how most investors typically view the markets:
You need to look at your arrangement with a financial advisor as a long-term relationship. Take your time, ask questions, but more importantly, make sure that they ask questions about you.
A questionnaire about your “risk tolerance” doesn’t constitute due diligence on an advisor’s part. Make sure they have your long-term goals in mind as opposed to just taking your money and earning commissions or a fee.
Managing our money can be difficult because making decisions about our money can be difficult. Look for someone that can help make managing your money and decisions easier so you can focus on the more important things in life.