Strategies for Finding Your Best Match in a Financial Advisor

• Select an advisor because you like him, not only because he beats the market.
• Select a financial advisor who shares your values, goals, and vision.
• Your relationship with your financial advisor is as much about the relationship as it is about the numbers.

Whether you have worked with a financial advisor before or you are new to the business of managing your money, this article will help to walk you through the process of either selecting an advisor or re-evaluating your relationship with your current one.

Select a Portfolio of Competence over a Portfolio of Products

The right advisor for you will herself be competent and knowledgeable about a diverse range of financial products, but no advisor is an expert in every area of finance and none is an expert on every product.

“I suggest that you seek an advisor who is competent and knowledgeable but who is also confident enough to seek outside expertise,” said Michael S. Berry, ChFC, a financial consultant in Newtown, CT, and the chief financial advisor to MDAlert.com.

According to Mr. Berry, it is often the people who are careful with money are often the best sources of referrals, rather than those who have the most money. “Try to identify someone in your life who is careful with money and is familiar with the essential aspects of the money business,” he advised. “Ideally, this person will become a money mentor for you so it is preferable if you share important values. Ask this person for a few leads on prospective advisors. Call each one and set up a time to meet.”

Values-Based Investing and Product-Based Investing

There are two types of relationships that an investor can have with a financial advisor: a values-based relationship and a product-based relationship. “In values-based investing, the investor and the advisor are bound by common values,” Mr. Berry explained. “A values-based advisor will take as much time getting to know how clients think and feel as his clients do getting to know him. From this perspective, this professional relationship has very personal aspects. The advisor knows enough about the character and the values of his client that he is able to both act in the client’s best interest and to do so in a way that the client will support. In the product-based relationship the advisor is selling products that are suitable for your fact pattern at the time of transaction,” he said.

How Do Advisors Get Paid?

Generally, financial advisors can be paid for their work in any or a combination of the following three ways:

1. A fee for services provided.
2. A management fee that is linked to the size of the portfolio being managed.
3. A commission or commissions based on sales of specific financial products.

The Fiduciary Standard

Let’s discuss an essential concept in the relationship between any advisor and client: the fiduciary standard. The first and most important thing that you should expect to receive from your financial advisor is that you will always be given financial advice that is in your best interest. The advisor has a fiduciary duty to act on your behalf. In other words, the advisor can act as your proxy, your advocate, your guide, your mentor—in matters related to your finances. A fiduciary is defined as a legal or ethical relationship of trust between two or more parties.

Registered Representative and the Suitability Standard

Many financial professionals at large banks, wire houses, investment companies, and insurance companies are not fiduciaries. They are known technically as registered representatives. Registered representatives are required only to recommend suitable products for clients. (These do not have to be the best investments for the client nor do they need to be profitable. They simply need to b suitable.)

The most important aspect of the suitability standard is that it is not as strong as the fiduciary standard. It can mean that the advisor is not required to put the client’s interests above his own, or those of his employer. (Further complicating this matter is the fact that a given advisor can be held to the fiduciary standard in some contexts but not in others.) The best strategy is to simply ask the question.

Conflict-free

On the other hand, investment advisors who are registered with the SEC, or a state securities regulator, for example, are legally bound to put the client’s interests above all, regardless of the employer’s interests or the interests of any vendors or accounts that the advisor services. Ask the advisor about his/her registrations.

So, another important set of questions has to do with certification and credentialing. Ask the advisor for his or her credentials. Is she a Certified Financial Planner (CFP) or a Chartered Financial Consultant (ChFC)? These are two of highest credentials that an advisor can achieve. Either one is strong evidence that the advisor will follow the fiduciary standard, but you still should ask the questions that we list in the next section.

Specific Questions to Help You Discern the Best Advisor for You

As we noted above, among your first questions of a prospective advisor can be:

1. Would you always act as my fiduciary and take actions that are, above all, in my financial interest?
2. How do you get paid? Are you fee-based, do you receive commissions for selling specific products, or is the picture more complicated than that? How will your compensation structure affect your decisions about my money?
3. If you receive commissions for selling specific products, how do you manage the conflicts of interest that can arise when you commission might be reduced by selling a product that is a better choice for the client?
4. What are your top 5 to 10 goals and values as a financial investment advisor?
5. Why would you select yourself as a financial advisor if you were in my position?
6. Tell me what’s important to you about your business, your family, and your friends.
7. Tell me about a mistake you made with one of your clients. What was the mistake and how did you repair the situation?
8. Are you clients making money? How do they do in down-market years? Can you give me some examples of how you helped people my age navigate market losses in the 2008 recession, or other difficult times?
9. In what financial areas do you feel that you are the most competent? Can you give me examples of situations in which you would seek assistance from another advisor or professional?
10. Do you have a case study? Or success story you can share?
11. Tell me about the specific experience you have in your area of specialty.

Will You Be Able to Work with this Person?

The purpose of the interview process is to identify a person who you will be able to work with, someone with whom you can comfortably discuss problems, challenges, opportunities, and differences of opinion. You should feel that you would be comfortable working with this person. If the relationship is successful, you will enter into a long-term, productive professional collaboration, so things need to be easy between you.
​

Based in part on an interview with Michael S. Berry, ChFC, the chief financial advisor to MDAlert.com, and managing member of Michael Scott Financial, LLC, (MSF; www.msf-advisors.com), and Flagpole Capital, LLC, (www.flagpolecapital.com). Mr. Berry has been named one of the “150 Best Financial Advisors for Physicians” by Medical Economics every year since 2012. You can reach him at (855) 449-7100 or mberry@msf-advisors.com.