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How to pick a financial advisor

We all know that we should never judge a book by its cover, right? We learned that in elementary school.

And yet, when it comes to hiring a financial advisor, it’s incredibly common—even normal—to make our decisions based upon equally superficial considerations. Which Ivy League school’s degree is on the wall, how much money they manage, how big a firm they work for, how fancy a car they drive.

It can be hard to know what exactly to look for in an advisor—especially if it’s your first time meeting with one. So here are three questions to help you get a lot more clear about what qualities a good advisor should have.


1- Do they diagnose before they prescribe?

Imagine a visit to the doctor’s office that doesn’t start with a question, but a statement. “Everyone I’ve seen today has the flu. Here’s your prescription.” The doctor leaves the room before you get the chance to explain you’re there for an allergy shot.

Crazy, right? But a quick prescription without a diagnosis describes too many investor experiences.

People need advice that fits their financial situation, not someone else’s. During the initial meeting, any financial professional should ask a lot of questions, while you should do most of the talking.

A solid financial diagnosis requires learning about you and your goals. If your first meeting includes a prescription before you feel your specific financial situation has been understood, you’ll want to find someone else.


2- Do they disclose conflicts of interest?

Asking about conflicts of interest isn’t foolproof. People can lie, and because we’re dealing with money, it’s all but impossible to remove every conflict.

But the way people react to this question is telling. For instance, I’ve crossed paths with many people who follow the suitability rule—a lesser standard of care that simply means an investment must be suitable and not necessarily in the customer’s best interest. They happily disclose their conflicts of interest. Others are clearly uncomfortable and don’t want to talk about potential conflicts.

The point here is not so much which answer you get, but how the advisor gives it to you. Advisors who don’t hesitate to pull back the curtain are more likely to put your interests first. They want to help you and understand the need for transparency. Once they reveal their conflicts, you can use this information to weigh the advice you receive.


3- How are they paid?

If you’re sitting there wondering if this is an appropriate question, let me just remind you, this is your money we’re talking about here! Of course this is an appropriate question!

This is actually a two-part question: How much do I pay you? And who else is paying you?

The first part deals with how much someone may be charging you for the advice you receive. The cost may be a flat fee or a percentage of the money you have in an account. You may get monthly or quarterly bills. Your goal is to understand how much you’ll pay for this service.

The second question—the “who else” one—can reveal other sources of income that may represent a conflict of interest. Compensation can include things like commissions, bonuses, or trips based on the products or services someone sells you. The more specific the answer to this question, the better. As a follow-up, you can ask, “Do you get paid (or win) anything based on the products you recommend to me?”

I want to stress that answering “Yes” to either question doesn’t mean you can’t or shouldn’t work with these professionals. Again, the goal is transparency. You want more information so you can put the advice you receive in context.

In a perfect world, a title, a standard, or a rule would tell us everything we need to know. But the financial world is far from perfect, and what we really need is more information. We need answers. We need to know what conflicts might influence the advice we receive. We need to know the price we’ll pay for the services we’re offered.

Only then can we begin to understand if the professional sitting across from us is the best person to help with our investments.

For those of you out there wading into the murky waters of picking a financial advisor, I hope this helps!




Carl Richards:








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