The process of selecting a financial advisor is a tricky business. On the Prudent Money Radio show, this past week I talked about this in great detail. I can simplify all of the material from that show and break it down into one key question to ask when picking a financial advisor.
Does the Financial Advisor have your best interest at heart?
There are for sure other considerations. However, none of those matter if your financial advisor is not committed to doing the right thing. The reality is that in a client/advisor relationship a high level of trust has to exist. This is simply because most people don’t understand the complexities of investing and money and rely heavily on advisors to help them. How do you know that a high level of trust is warranted?
Do they operate by law under a Fiduciary standard?
Depending on what set of laws a financial advisor has to follow determines what standard that they are held to. If the advisor is bound to by law to operate under a fiduciary standard, then they are required to hold the client’s best interest above their own. Unfortunately, the vast majority of advisors are not required by law to be held to that standard. Regulators are working to change that ridiculous loophole in the regulations of advisors. Can you imagine an advisor working with clients and their money and not being held to the highest standard of ethics? It is happening.
KEY – Determine if the advisor is upheld to this standard
Salesperson or a Consultant?
An advisor can approach a potential client in either a sales approach or a consultation approach. In a sales approach, it is obvious. They are concerned about selling you the product or service. They might take a little bit of time to get to know your situation and needs. However, the main objective is selling. The main objective of their time with you will be all about that product or service.
They could also conduct their business as a consultant. A consultant takes the time to really do a thorough job identifying problems before offering solutions. Time is not a factor. Part of the process in working with the prospective client is trying to determine if the consultant is a fit. A good consultant will always walk away from a situation where they feel doesn’t make sense. Getting the process right is the most important objective to a consultant. A consultant at heart knows that if the process is done correctly the prospective client is been put in a great place to make the decision on their own without any pressure from the advisor.
KEY- Always ditch the product or service pusher. Purely sales motivated people are easy to spot. It is highly unlikely your needs and best interest is going to be ahead of theirs.
There is a mixture of commission driven/fee driven salespeople and consultants in the financial services business. Determining who you are working with is the first decision point. Until you get to that level of peace, it never makes sense to go forward. When it comes to trust, there is no room for mistakes.