Selecting a financial advisor can be as simple as making a phone call, but choosing a good financial advisor is a completely different story. To make the process simpler, here are four ideal qualities to look for in a financial advisor. While these qualities are somewhat subjective, there is a baseline of care associated with each. You worked hard for your money—make sure you spend the time necessary to select someone you can trust to handle it for you.
There are few things more nerve-wracking than not receiving a call back from the person in control of your money. Even if there’s a good reason for the delay in response, it can feel like a personal affront to be left hanging when, seemingly, your hard-earned savings are on the line. But when money is involved, our emotions work overtime.
With that in mind, it’s important to remember your financial advisor isn’t meant to be your best friend or confidant. You should meet with your advisor once a year at the very least, but depending on the advisor, that may be the only meeting. Calls and emails may not be returned quickly if that isn’t the type of advisor/advisee relationship you have established. Also, the responsibility to set up your annual meeting is shared. Your advisor should make it easy to schedule an annual meeting, but some initiative on your part may be required.
2. Teaching Ability
Your money knowledge is limited to what your experiences and education have shown you. Paying a financial advisor is an experience and a service that should increase your base of financial knowledge. Do you know what an American Depositary Receipt (ADR) is? What about Modern Portfolio Theory (MPT)? If you’ve been with an advisor for several years and still don’t know what these things are, that’s a problem. Meeting with an advisor should be a learning and growing experience for you. If your advisor is unable or unwilling to help you understand what your money is doing, it’s a problem.
3. Risk Radar
You should trust your advisor to make smart decisions with your money, but they shouldn’t go so far as to make decisions you are uncomfortable with. Your risk tolerance is as personal as your ability to handle spicy food. Force-feeding you hot foods isn’t going to make you like them any faster. A good financial advisor will spend the time assessing your risk tolerance, evaluating your future goals, and then educate you about your options—though there is something to be said for an advisor who challenges you to go just beyond your comfort zone. It’s a fine balance between what you are comfortable doing and what your advisor envisions for you.
Sure, this quality seems like an obvious one, but sadly, in many cases it is not. The market is a tricky thing, and no matter what anyone says, no one knows what the market is going to do. Your advisor’s job boils down to helping you do well in good markets and surviving in bad markets. Any promises made beyond that are overconfident and will leave you disappointed. Your advisor should be humbly knowledgeable. Gaining confidence in your advisor’s ability won’t come from someone who talks a big game; it comes from someone who tells you the truth, even when the answer is ‘I don’t know.’
The ability to trust someone with your hard-earned savings is a process. Don’t expect to make a call to the most popular firm and be assigned a perfect advisor. It won’t happen. You’ll be assigned a flawed advisor, and that’s okay. All you need to confirm is that this advisor is knowledgeable about his/her field, that they are able and willing to teach you along the way, will be appropriately attentive to your needs, and will respect your risk tolerance. If you can find an advisor who possesses these traits you’ll be golden.
Peter Dunn, aka Pete the Planner, is an award-winning financial mind who has authored five books, hosts the popular Pete the Planner radio show and travels around the country offering financial education. His signature wit will have you laughing as you learn. For more from Peter, visit www.petetheplanner.com.