In episode 21 on the Wilson Wealth Management YouTube channel, we continue with how to find the best financial planner or advisor for your requirements. Today the focus is on the financial advisor’s personal fit and service offering. Both should match your unique needs, client type, and personality.
In episode 19, we discussed finding an advisor who has the technical qualifications to meet your needs. But without relevant experience, to a level that you require, qualifications do not mean much. We reviewed financial advisor experience in episode 20.
Now that you have found a potential advisor with proper training and experience, you need to assess the match. Is there a strong personal fit between you and the advisor? Does the advisor’s service offering meet your needs? Clients often intuitively assess the latter. But often do not consider the personal fit.
Questions to consider:
“What type of clients does the advisor typically work with?”
If a financial planner usually works with retirees on their investment and cash flow planning, is that a good fit for a 30 year old client? Perhaps. But maybe the advisor’s focus is on fixed income and other low-risk (low return) investments, where stability and consistent cash flow is important. Will they also be proficient in recommending more volatile investments for clients with 40 year time horizons?
The same applies to other areas. Life insurance. Child education funding. Entrepreneurial advise for small business owners. Not necessarily a deal breaker. But consider the type of clients an advisor typically deals with. That may give an idea of the fit with your needs.
“What is the typical size of the advisor’s clients?”
This has two aspects.
One, if I am primarily working with clients who have bankable assets of $10 million, I will implement different strategies, tactics, and investment products than I would for someone with $100,000.
The higher dollars allows for more non-diversified assets, such as individual stocks and bonds. Because the assets exist to properly diversify the overall portfolio. Whereas, for the client with $100,000 in assets, low-cost, well-diversified index funds tend to be the more prudent strategy.
Also, with more wealth to diversify, often it can be useful to invest in more niche markets or alternative assets. Private equity, for example. Or more tactics involving derivatives and hedging. Again, areas that are not cost-effective (nor usually necessary) for someone with much less capital.
The size of clients the advisor tends to work with may give you an idea of their experience and investing approach with someone of your asset value.
Two, who pays the bills? If the bulk of an advisor’s clients average $5 million in assets and you have $100,000, where do you fit in the advisor’s priority list? Usually not intentional. But in a volatile market, with a finite number of hours in the day, where will you fit in the returned phone call or email strata?
“What is the advisor’s investment philosophy?”
Another key consideration that is often overlooked to some extent.
This includes the overall approach to investing? If you want to day trade, you and I will not be a good fit. I focus on longer-term investing and achieving identified financial objectives. There are other advisors who are happy to advise on high-frequency trading approaches.
Another overall philosophical area may be technical versus fundamental analysis. I do not perform technical analysis in my own practice. I believe in fundamental as the better approach. If you want to spend your time tracking trading volumes and price trends, we will not be a good fit.
The investment process is also part of the philosophy. A buy and hold strategy tends to be my preference. For many clients, investing in passive, index funds. Minimize costs, match the market return. My focus is heavily on the investor profile and target asset allocation. Not trying to time the markets on a weekly basis, jumping in and out of stocks. If you prefer to invest in the latest hot stocks and short-term trends, with much more active trading, then we may not be a great match.
Risk tolerance is another part of the overall philosophy. If you are a low risk investor, based on your investor profile and personal risk tolerance, then recommending derivatives and venture capital is not a good fit. The wrong investments for someone with a lower risk investor profile. But also, for the stress and emotional toll that comes with a portfolio full of assets you do not understand or like.
Conversely, if you are in your early 30s, with lots of excess cash to invest, then less liquid investments may be warranted. And you will not be happy if I try and get you to invest in a 60-40 balanced fund or a 2060 Target Date investment product.
In general, I think advisors do a decent job of matching clients to suitable investments. However, if the advisor is compensated based on product sales or works in a specific sector (e.g., venture capital), there may be a potential issue.
“Does the advisor give me the warm fuzzies?”
A client-advisor relationship is best served when both parties are open and honest with each other. It definitely helps if you like the advisor on a personal level. Or, at least, respect them enough to open up about what is happening in your world that may impact your wealth plans, investing patterns, etc.
When I worked in public accounting, you would often see clients come in during tax season. After the year end was closed. “Oh, we did this and that during the year. Can you help with the tax impact?”
But, by then, it is usually too late. Having that relationship where you can discuss things before they happen can make the partnership much more effective.
“Will this advisor be a partner I collaborate with in reaching my goals?”
Another area that differs between advisors. Also, in what the client may prefer.
I believe the client-advisor relationship should be a partnership. A collaboration. Where the client is fully part of the process, understands what is being done, contributes, and buys-in on the actions taken.
Other advisors (and clients) prefer more of a one-way street. “I have a problem. What should I do?” The advisor provides a recommendation and it is implemented. Not a lot of time on the reasoning as to core concepts such as diversification, risk-return, asset correlations.
And some clients do not want to invest their precious time to be educated or be a part of the process. They hired an “expert” to make the best decision. They just want to know what they should do, not necessarily why. Which is fine if that is your personal way of doing things.
However, if you prefer a true partnership, seek out advisors with the same mind set.
On the actual service offering, you should consider the following questions:
“Do the products the advisor offers meet my needs?”
If you require life insurance, does the advisor directly, or even indirectly, offer those products?
If you subscribe to low-cost, passive investing, can you get the best products through this advisor? Or does the advisor only provide in-house products? That may, or may not be, the best in class.
If “free” advice does not get you access to the best products for your requirements, is the cost worthwhile?
“Does the service offering also meet my needs and expectations?”
If you need tax advice or estate planning, can your fund salesperson provide as well?
Who does the actual work on your file? The high end advisor you met initially, with all the experience and qualifications? Or one of the junior staff, just starting out? If the latter, what controls are in place to ensure quality of work?
Is all work performed internally, or is some completed by third parties? Again, what assurance can you receive as to the quality of work performed?
Does the advisor receive any fees for referrals to third parties for additional services?
For work not performed by the advisor’s firm, is that part of the engagement fee? Or will you have to pay extra for work done by third parties?
Many issues revolve around the fee structure for work performed. And that is without even discussing the advisor’s remuneration. Something we will consider in episode 21.
If you would like some additional detail on personal fit and offering, please read “Assessing the Service Offering”.
