When choosing a financial advisor, don't ignore your gut...

Herman needs a new financial advisor…

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Herman needs a new financial advisorI’ve been a Herman cartoon fan since the day I read my first cartoon…I think it was Hal the deer bemoaning the bulls-eye shaped birthmark on his chest, and I haven’t stopped laughing at them since (OK, I guess you had to be there)!  But for me, among the most memorable of Jim Unger’s creations was this one.

Understated, but poignant with a thoughtful public awareness message.

In a recent post, I expressed my thoughts on how anyone can benefit from having a financial advisor.  But then, with over 100,000 advisors claiming to be part of that profession in Canada alone, the  obvious  question is, how do you choose the one that’s right for you?

Before you nail down the WHO, it’s probably best to clarify your thinking on the WHAT.  In the financial advisor’s world, there exists a spectrum of services that are offered, and few (if any) are equipped to handle them all.  In fact, the more mature the advisor, the clearer an understanding they will have of their strengths and weaknesses; the more confident they are in their abilities, the quicker they will be to point you in a different direction if your needs and their skill-set don’t line up.

If a planner proudly boasts a lists of “specializations” as long as your arm, you probably want to keep your distance  – unless they are part of a multi-disciplined advisor team where the advisor will activate other members of the team for different areas of required specialization.

Herman’s wife (does anyone know her name??) raises another relevant and timely issue in Jim Unger’s cartoon.  The next important criterion, in my humble opinion, is to seek out someone who commits to their financial planning as a full-time career.  Some jurisdictions prohibit part-time financial advisors, but most allow it today.  The industry is too dynamic, demanding and fluid to allow anyone to stay on top of the financial evolution taking place without putting their full-time attention to it.

So often our next step is to Google “what makes a good financial advisor”, tapping into the omniscience of the internet.  Most sources will quickly point you toward advisors who have attained their CFP (Certified Financial Planner) designation.  True enough… advisors who have attained their CFP have distinguished themselves by completing a rigorous educational regime, and have been in the financial services profession at least 3 years.  However, not even all CFP’s are created equal.  As the Wall Street Journal article quite accurately points out, “even those who pass the exam may come up short on skills and credibility”.

A nice segue to the pivotal factor that is so often overlooked.  Today’s media and pop culture depict top financial advisors as superior number-crunching, global market insiders who have elusive insights to not only understand the global landscape, but also have the capacity to predict its immediate impact on the market.  However, studies conducted with people who work with a financial advisor continually refuse to rank investment return even in the Top 10 of client priorities.  What’s at the top?

Trust.  Communication.  Taking your best interests to heart.  Listening.  Competence.

If you feel that your financial advisor understands what keeps you awake at night, listens to your concerns, has access to a good inventory of diverse product solutions and demonstrates a commitment to exploring alternatives that will clearly silence the scary things in your world that go bump in the night, you can be confident that you’re on the right track.

It’s my opinion that it is NOT your advisor’s primary responsibility to make money for you. The financial market is what makes money for you, and your advisor’s #1 responsibility is to help guide you toward your place in that very crowded market.

Still, don’t hesitate to ask for references.  And a growing number of advisors are introducing letters of engagement.  These are documents that clarify what it is you are asking them to do for you, effectively laying out the ground rules for a successful, long-term relationship.  Don’t let the engagement letter intimidate you; taking the time to familiarize yourself with the content will help put you and your advisor on the same page from the outset of your relationship.

One final note: steer clear of the financial advisor who brags about how he or she has been able to continually out-perform the market through detailed research and superior fund or stock selection.  We reap what we sow, and few of these situations turn out well.  Instead, be comfortable with the advisor who may offer very unspectacular promises.

It’s my opinion that it is NOT your advisor’s primary responsibility to make money for you.  The financial market is what makes money for you, and your advisor’s #1 responsibility is to help guide you toward your place in that very crowded market.

Thrilling, huh?  But I’ve come to the conclusion over the years that we as advisors shouldn’t promise anything more, because we really can’t.  The active, out-performing advisor may appeal to our sense of adventure and desire to be on the leading edge of things, but the advisor who brings a buy-and-hold strategy that tastes like vanilla may be offering your best bet over the long-term with a well thought out strategic allocation.  It’s not that he or she is lazy or disinterested; it may just be that they believe as I do: you re-allocate your portfolio in response to changes in your personal circumstance or outlook on life, not in response to short-term market performance that is often a result of irrational investor behavior.

So, explore your options and don’t be afraid to interview a number of advisors.  I think you’ll know that perfect fit for you when you see it, and it will be determined more with your heart than with your calculator.

Now that I’ve alienated every technically oriented advisor out there, I invite you to share your comments!  What’s been your experience?  We’d love to hear from you.

  • Jake
    Jun 1 2012

    Well put Rick. It’s been said that ‘in the short-term the market is a voting machine, but in the long-term it is a weighing machine’. When we react to short-term changes in the market we undermine our long-term goals. Staying the course is almost always our best option, and yet in times of uncertainty it can feel like the most difficult thing to do.