There comes a time in everyone’s life, once they achieve financial security, when they are forced to consider receiving professional help in managing their hard-earned money. Unfortunately, this is just another one of the ways in which formal education systems fail to equip us with the real-world skills necessary to manage our investments. That is, if you consider equipping yourself with the skills that got you to where you are now a failure on the part of the education system. Fortunately, the internet exists for a reason, the reason being the ability to research the many skills and knowledge that you need to make the most of what you have, preserve it against all odds, and then propagate it further.
By definition, your financial advisor—or planner, as they are sometimes known—is a certified professional who offers their clients their expertise on investments, insurance, retirement planning, taxes, and wealth management. This isn’t a complete list, of course. Implementing a financial strategy is not where a financial advisor’s duties end either. This plan should then be monitored until maturity, to make a quick intervention if it ever looks like things are going sideways. Financial advisors very rarely come on their own and instead tend to be representatives of companies that bring their own list of credentials into play.
For one, it is important to know the key traits and characteristics you should look for in your financial advisor. Your financial advisor should be willing to work with you, from a collaborative standpoint—not someone who will take over the management of your wealth. It’s important to remember that this doesn’t mean that you’re hiring a yes-man. Hiring an expert is an expensive investment, but it’s fine as long as you’re receiving the expertise you’re paying for. This will include providing you with financial and investment strategies while outlining the pros and cons of the options available to you. The options that your advisor presents you with should take both your present financial situation as well as your long-term goals, effectively helping you create a tailored strategy to maximise your returns.
In fact, customised financial advice is ranked as the single most important characteristic of a financial advisor. This was established through Morningstar’s ‘Voice of the Advisor’ report that analysed how often people chose a certain item as least or more important than others when working with an advisor. Three of the four top factors in the survey results are related to customised advice: ‘personalised financial advice that meets my specific goals and needs’, ‘ability to understand my risk tolerance and appropriately align my investments’, and ‘specialisation in specific financial situations, such as retirement planning’, rank two, three and four on the list. The first, as can be expected, is ‘expertise and knowledge in financial planning and investments’.
And the goal should be maximising your wealth, not theirs. Some financial advisors unfortunately tend to direct their clients towards certain investments or expenditures with the ulterior motive of earning a commission for doing so. It’s important therefore that you always cast a critical eye over what you’re presented with, and invite your immediate family to discuss the big decisions before green-lighting them. The support you might have in legal terms in this regard will vary depending on the area or the country you live in—not all legal guidelines provide an adequate definition of who is considered a fiduciary. ‘Fiduciary’ is a legal term that describes a relationship that involves trust, and what can be legally enforced before the court. Your best bet is investigating whether your advisor’s credentials reflect that they are investing in studying a changing landscape—which shows that they are open to market forces, and do not ‘advise’ you based on their own opinion or interests.
Perhaps one way of knowing how to pick your financial advisor is to know how to tell a good one from bad one. Transparency, for instance, is an essential professional trait in anyone promising to help grow your wealth. This transparency should range from their professional fees and process to building your trust in understanding both the investment world and your portfolio’s place in it. Financial advisors who evade or ignore your questions no matter how often you ask them, avoid giving you details about commissions, potential or otherwise and change the topic frequently when you try delving deep into anything. If it appears they cannot take the time or the trouble to explain matters to you, it might be best to look for an advisor with a better approach to communication to ensure that there is little room for misunderstandings.
Another potential red flag in a financial advisor is their tendency to create a false sense of urgency regarding the options open to you. Such advisors will often make you feel as if you are missing out on a lot of money if you don’t jump on some bandwagon or the other. There might certainly be instances where there is a lot of potential return at stake based on your ability to make quick decisions. However, no financial advisor should push you toward deciding without understanding the potential consequences properly. To put this into perspective, creating a false sense of urgency is a tactic frequently used by scam artists to force people to make quick decisions without carrying out the proper research. Your advisor should be your agent in this respect, carrying out the research, and helping you digest their findings before arriving at a rational decision. A sustainable plan for financial success should be resilient to a volatile market, not one that depends upon it.
(Theruni M. Liyanage)