Finding a Great Financial Advisor: Part 4

By Ginger Weber | March 28, 2016

Like professionals in any field, no two financial advisors are exactly alike. However, many would assume that all investment professionals are well-trained, highly educated individuals with a keen financial sense. 

Ginger Weber is a CFP Certified Financial Planner and Financial Advisor with Premier Financial Group in Eureka Humboldt CountyIn a perfect world, this would be true, but in reality financial professionals can counsel you on your investment portfolio with only basic licensing – or no licensing at all.  Also, a financial professional, technically, doesn’t need a college degree to become a financial advisor and continuing education isn't mandatory! 

Given that financial planning is a profession that has a significant impact on an investor’s financial future, it's essential to choose an experienced, educated advisor who places your best interests first. But with so many options, how do you know who you should work with? Certain qualities may indicate you have found a competent and talented advisor, but as we've discussed in Finding a Great Financial Advisor Part 1, Part 2, and Part 3, it goes beyond training, education and experience. In this fourth installment, we will take a look at an advisor’s investment approach.

Does Your Financial Advisor Provide Comprehensive Financial Planning?

When choosing an investment professional, you'll need to consider the effect on your comprehensive financial plan. While many financial advisors bandy the term "comprehensive" about, a truly comprehensive plan offers many advantages to the rational investor. A comprehensive financial plan encompasses more than simply short-term goals. Rather, it may include: 

  • Holistic wealth management

  • A look at short-term and long-term financial goals

  • Personal goals and objectives

  • Significant life cycle events

  • Retirement planning

  • Estate planning strategies

  • Tax planning

  • Debt management

  • Charitable giving

Generally, the more services a financial advisor provides - the more comprehensive will be your financial planning. As such, as you work with your advisor, other needs -- and the services of other professionals -- may become evident. An advisor may also recommend other professionals such as:

  • Accountants

  • Attorneys

  • Insurance agents

  • Mortgage brokers

  • Professional trustees

While this practice in itself isn't a problem, you should ask whether your advisor receives referral fees from the recommended professional. If the answer is "yes," this represents a potential conflict of interest. While this might not be a deal-breaker, it's certainly a factor to consider before moving ahead.  Also, it is good to know if your financial advisor expects you to work with these other professionals on your own – or if your financial advisor will work as a liaison with you and them as part of a team effort.

Comprehensive Financial Planning and Potential Conflicts

Speaking of potential conflicts, if your financial advisor suggests mutual funds as part of your comprehensive financial planning process, determine whether your advisor receives 12(b)1 fees or so-called "trails." If they do, they're not a fee only advisor. As we discussed in Part 2, fee only advisors are able to recommend investment products based solely on investors' needs, rather than to obtain a commission. 

Keep in mind that trailing fees can have a negative impact on your portfolio, as -- in most cases -- the product sponsor ups shareholder fees then passes the increase along to the financial advisor on a regular basis.

Other potential conflicts of interest might include:

  • Programs with high annual expenses

  • Programs resulting in higher payout to the advisor

  • Referral incentives (such as cash or gifts) from other professionals

  • Large and undisclosed upfront commissions resulting in significant surrender penalties

  • Special incentives (such as money, gifts, travel)  to sell the firm’s most lucrative investment products

  • A financial advisor’s ownership interest in a proposed investment

Keeping Communication with Your Investment Professional Going Strong

Ginger Weber is a CFP Certified Financial Planner and Financial Advisor with Premier Financial Group in Eureka Humboldt CountyYou deserve a financial advisor who stays in contact with you!   So often we hear of investors who have financial advisors that don’t return calls -- who do not offer detailed guidance -- and who want to talk more about fishing trips (literally!) than your financial future.  You can do better than that.

The meetings you have with your financial advisors should center around your portfolio performance and what changes need to be made to make sure your plan stays on track.  You should be provided with detailed notes from those meetings for you to have for your records.  Not all, but many, investors prefer to receive regular reviews and ongoing communication from their financial advisor.  We prefer to stay in close contact with our clients because, first and foremost, we are here to be of service to them. 

In this series, we explored many ways financial advisors may be different – as well as what to look for so that you can have the best investment experience possible. Too much is at stake to trust your financial future to someone who is untrained, uneducated, or not interested in putting your financial well-being as the top priority.  You owe it to yourself and your family to make sure you find a financial advisor who is capable of creating a financial plan for you that focuses on your long term goals while being able to weather the inevitable ups and downs the markets will surely bring.


Posted in Financial Planning