It may not be a friendship per se, but your financial advisors do get an intimate look into your life. Only after eight years as a financial advisor do I feel able to explain how you should go about finding the right financial fit.
And by “fit” I mean the right advice at the right time for you to use to your advantage. Because if you’re not getting advice that gives you an advantage, then there’s no need for you to pay an advisor for it. Some questions to ask yourself:
Are you comfortable?
An old adage says it’s better to be comfortable in your clothes than only to wear comfortable clothes. So it is that you need to be comfortable and financially naked in front of your advisors. So the first attribute to seek is being comfortable with financial advice. If you are not, the advice you get may not be in your best interest. But this isn’t a one-way street. Any good advisor needs to be revealing to you, as well.
Do they have similar clients? Good advisors need to reveal if they have other clients like you. They should be able to relate to your situation because they are familiar with it. If the advisor does not, then he or she may not have the experience you need. They may overlook something you need or put you into financial instruments more aggressive than are appropriate or relevant to your situation.
Ask your advisor to tell you about himself or herself and their practices the same as you have revealed your financial life to them. And if they don’t care about your financial life or want to share about their practice, then move on. You need, ahem, strategic advice. By this point, you should know whether or not you “want” to work with this person. Were this a personal relationship, I would say you are now ready to be dating, but exclusivity may still be somewhat down the line.
Why not be exclusive yet?
Don’t be exclusive yet because comfort is not enough. Similar to your personal relationships, it may cost you to leave your financial advisor, so look before you leap. Secondly, your advisors need to earn your trust as well as their commissions. We want our financial lives to thrive if we are paying for advice. In this regard, we need to have a comprehensive plan. This is what separates the amateurs from the professionals.
Can they explain things to you clearly?
Advisors worth their commission can explain the complex world of finance in easy-to-understand terms. Anyone who can’t could be disguising a lack of knowledge. I would not deal with an advisor who could not say, “I don’t know, but I’ll find out.” Finance is complex today, and no one knows it all. You should feel confident that your advisor understands it and explains it in reasonable language, not just a lot of financial jargon. Don’t tolerate this. You are paying for advice and should have some understanding of it.
Since you are not my client, I am prohibited from giving you specific financial recommendations. But I can give you an overview of what a solid financial plan should look like. It should be a document. It should start with an overview of your personal financial situation (net worth and cash flow). It should include your goals and may include specific milestones. It needs to address tax strategies. It should reference estate planning (wills, representation agreements and powers of attorney, for example). Get it in writing, otherwise how will you do an annual review and be able to compare forecasts with reality?
Do you have confidence?
Most important to our psychological well-being is confidence. It comes from being asked the right questions and asking what you want and need to know about your financial future. Think of this as the commitment stage. If you have found an advisor who has clients similar to you, if they can explain and demystify the complex world of finance and if they are able to put in place a comprehensive plan, then you can ask the questions you need answered and ultimately financially modelled in order to make the best decisions for a prosperous future. And, as in all relationships, this is only the beginning: your professionals are simply advisors. You are the deciders, and you have to live with the outcome of the decisions you make.
Brad McPhee, past chair of the Gay and Lesbian Association of B.C., is a Vancouver-based consultant with Investors Group. Views expressed in IN magazine are solely McPhee’s. IN magazine, as well as Investors Group and its affiliates, are not responsible and cannot accept any liability. The column is intended as a source of information and not a solicitation to buy or sell investments nor to provide investment, financial, legal, accounting, tax or other professional advice. If you have a personal-finance question, email it to Money$tyle at firstname.lastname@example.org.