I recently met another advisor who mentioned something that stuck with me. He told me, “Our clients probably look at hiring an advisor like buying a home. Most clients buy a home maybe once or twice throughout their lifetime, and it’s a big decision.” I couldn’t agree more. A home buyer does their due diligence to consider many factors, like price, location, size, build date, condition, and any significant issues with the property. Depending on their objectives, needs, and wants, these factors might also be prioritized differently from one home buyer to another.
Here are 5 things to consider when hiring an advisor:
1) Services Offered
You’ve recognized the need for help, and whether it be advice on retirement, college planning, investment management, tax planning, or any combination, you’ll want to ensure the advisor offers the services you’re looking for. Some advisors focus primarily on helping you with your investments, with little emphasis on providing financial planning advice. Meanwhile, other advisors might do your taxes and provide ancillary financial services, like insurance planning. If you’re looking for help with your total financial picture, find an advisor offering comprehensive financial planning, and ask them to talk you through their process if unsure.
2) How they get paid and Costs for Services
One of the more common ways an advisor charges clients for their services is by assessing a fee based on the number of dollars they manage on behalf of the client. The typical advisory cost for assets under management (AUM) agreement is approximately 1% annually. However, some clients’ circumstances may not allow an advisor to manage their investments, or they may prefer to work with an advisor that assesses project-based fees, hourly fees, or a flat ongoing fee for year-round advice. There may be other ways advisors get compensated for their services, but I’ve outlined some of today’s more common ways. Understanding the advisor’s fee structure may shed light on where they spend their time and where their core competencies lie, although this may not always be the case. If the advisor is a registered investment advisor, you can search for their ADV Brochure and see how their fees are charged and how compensation is structured.
Learn more by reading “Fee-only Advisor, Fee-based Advisor, Why should I care?”
3) Experience and Credentials
Most prospective clients I’ve encountered are good about asking about my experience and credentials. Don’t be afraid to take it a step further and ask the advisor how they have helped clients with similar circumstances and needs. There are numerous fancy designations that advisors may carry on their business cards, but the most recognized and comprehensive credential for financial planners is the CFP® certification. The CFP® Board requires CFP® Professionals to meet extensive training, minimum experience, and continuing education requirements to use the CFP® mark. CFP® Professionals must learn: Professional Conduct and Regulation, General Principles of Financial Planning, Risk Management, Insurance Planning, Investment Planning, Tax Planning, Retirement Savings and Income Planning, Estate Planning, Psychology of Financial Planning, and Financial Plan Development. More information on the CFP® certification can be found at www.cfp.net.
4) Fiduciary Standard or Suitability Standard?
Not all advisors must adhere to the fiduciary standard when working with their clients. Thus, I would encourage you to ask any advisor you’re interviewing or considering working with “Are you held to the fiduciary standard all the time when working with clients?”
Learn more by reading “Is your advisor held to the Fiduciary Standard or Best Interest Standard? The devil is in the details.“
5) Check for judgments or disclosures
The financial services industry is a highly regulated industry where consumers can quickly search sites like www.brokercheck.com (for advisors employed by broker-dealer firms) or www.adviserinfo.sec.gov (for advisors employed by registered investment advisors) to look up the individual’s industry work history. Consumers can also view any judgments or disclosures against an advisor for misleading clients, bankruptcies, certain criminal convictions, and other material facts requiring exposure to protect investors. Registered Investment Advisors, like VenWealth, must provide clients with an ADV Brochure containing disclosures about certain disciplinary events involving the advisor and key personnel. The CFP® Board has its own disciplinary procedures to address any misconduct involving a CFP® Professional.
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Article written by Peter Kim, CFP® on May 11, 2022