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Finding a Great Financial Advisor Part 3: Style and Accountability

By Bruce Smith | March 22, 2016

If you're like most people, one financial advisor probably seems very much like the next -- an intelligent, highly educated person with an affinity for giving great financial advice. If only this were always the case.

Bruce Smith is a 401(k) Financial Advisor with Premier Financial Group in Eureka Humboldt CountyIn reality, just as in all professions, the competency of each advisor can be quite different from the next. This is due, in part, to the regulations that govern the financial industry that require little beyond the basic licensing before an advisor can begin counseling investors on where to place their retirement nest egg. 

In addition to the relatively low hurdles required for professional licensing – did you know that there are no requirements for an investment professional to have a college or even a high school degree?  Imagine working with an advisor who does not have a high school diploma – and how would you know unless you ask?  

Given that a financial advisor's job involves counseling investors about high-stake financial decisions that may significantly impact their financial future, these requirements just don't seem very stringent. As we've discussed in Finding a Great Financial Advisor Part 1 and Finding a Great Financial Advisor Part 2 of our four-part series, selecting a competent, well-educated and highly trained advisor is essential to your peace of mind and your financial future.

Though the options may seem overwhelming -- and though many financial advisors may even seem quite similar -- professional characteristics such as work style, accountability, potential conflicts of interest and past disciplinary actions all provide clues as to an advisor's suitability. In Part 3 of our four-part series, we’ll show you what to look for when choosing investment professionals to guide your wealth management strategies.

Work Style: Personal Attention, Teams and Financial Planning Consultants

In some cases, like your favorite restaurant, having a long client list is simply a sign of high quality service or a desirable product. But when it comes to financial advice, a larger client base isn't always better. In fact, personal attention is key and if an advisor has too many clients, they may not be able to provide your portfolio with the individualized, up-to-date attention it needs. 

Ask a potential advisor how many clients they advise; if the number seems high, ask how the heavy workload will affect your relationship. The number of clients an advisor works with may affect the amount of attention they're able to devote to your account.  Some offices have thousands of clients!  How would it be possible for one financial advisor to properly serve over 1000 individual clients?  Yet, we see this all the time.

On a related note, find out if you'll be working directly with an advisor or if you'll be interacting with a team of professionals. If you'll be working with a team of people then you should ask to meet any one who you’ll have contact with before starting the relationship. 

Accountability and Conflicts of Interest: Vetting Your Financial Advisor

When considering the services of a financial professional, the potential for conflicts of interest should always be taken seriously. As we discussed in Part 2 of this series, certain compensation structures may lead to conflicts of interest.  At Premier Financial we are fiduciaries to our clients.  We feel it is immensely important because fiduciaries have a legal responsibility to put their clients' financial interests above their own. As a fiduciary, it is our moral and legal obligation to clients that requires us to: 

  • Always act in good faith and with candor

  • Be proactive in disclosing any conflicts of interest that may impact a client

  • Not accept any referral fees or compensation contingent upon the purchase or sale of a financial product

We feel that being a fiduciary is vitally important. It should be noted that not every financial advisor is a fiduciary. Many of our current clients were flabbergasted to learn that their previous financial advisor was only legally held to a “salesman standard,” which means they are only required to “balance” their interests and their company’s interest and their client’s interests. Seems like a lot of balancing going on there! We feel that choosing an advisor who is a fiduciary and is legally bound to place a client's interests first can eliminate some potential areas of conflict and help establish accountability.

Bruce Smith is a 401(k) Financial Advisor with Premier Financial Group in Eureka Humboldt CountyBut conflicts of interest aren't always solely based on commission-based compensation structures. Financial advisors may be involved in other business ventures or investment related entities that can also present a conflict.  If an advisor you are considering is engaged in an activity that has potential for conflict you should request a detailed accounting of how that activity may impact the advice they provide.  And though you may find that many financial advisors are not interested in discussing these matters it is probably in your best interest to demand this level of honesty and transparency. And if your advisor is still not willing to have these types of conversations, it may be a tell-tale sign of danger ahead.

Finally, a bit of research may also turn up disciplinary actions the advisor has been involved with regarding clients or a regulatory body. Often, investment professionals who are disciplined were found to have provided imprudent advice. Be wary of what you find, but give the advisor a chance to explain their side of the incident. 

Looking to the Future: When Investment Professionals Retire

Finally, when it's time for your wealth advisor to retire or move on, how will they handle their clients? Will you be passed on to another professional? Ask potential advisors about contingency plans and find out what they have done to protect you should there be change with their company. 

This third part of our four-part series on choosing a great financial advisor explores just a few of the many characteristics to seek in a wealth advisor. In Finding a Great Fincanical Advisor Part 4, we'll discuss one of the most important qualities: Financial Planning Strategy.

 

 

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