Everyone is trying to part you from your money, explains Sheryl Garrett, with a dash of hyperbole.
Garrett is the founder of the financial advisory Garrett Planning Network, and her observation rings true. Maybe not “everyone” is trying to make you a sucker, but you do have to learn how to distinguish the best planners from less desirable ones. Above all, you need to find a financial advisor who works for you, not against you.
When selecting an advisor, you can opt for the traditional route, a human advisor, or go a bit more modern with a robo-advisor. You can even take a hybrid approach, using a robo-advisor for some tasks and a human for more personalized or complex issues. Whichever you select, you should know how to pick an advisor that best fits your wants and needs.
To help you choose a top human advisor, here are five traits that the best financial advisors have in common.
1. They’re true fiduciaries
You want an advisor who is a true fiduciary, someone who looks out for your best interest and puts it above his or her own. Fiduciaries make the right decisions for you, even when it costs them, and they’re the people you want on your side.
But doing what’s in the client’s best interest is broader than matching him or her with the right financial product. “A great planner needs to get clients to explore all reasonable opportunities,” Garrett says. Part of a planner’s job is finding out what the client wants, even if the client isn’t quite sure.
Fiduciary is the standard that clients should look for, but the delayed implementation of recent legal changes, specifically the 2017 Department of Labor Fiduciary Rule, muddy the water between people who can call themselves fiduciaries and those who actually look out for their clients’ best interest.
Doing what’s in the client’s best interest is broader than matching him or her with the right financial product.
“With the Department of Labor uncertainty, fiduciary doesn’t mean what it had meant,” says Micah Hauptman, financial services counsel at the Consumer Federation of America, a consumer advocacy group.
So what’s the alternative? Hauptman says, “Now I’d say look for a fee-only fiduciary.” A fee-only fiduciary is paid by you to act in your best interest.
2. They’re transparent about how they get paid
It’s critically important to understand how your financial advisor gets paid: by you, by big financial firms for putting clients into certain products, or something in between.
The best advisors are clear upfront about how they’re compensated. And the best scenario is that they’re compensated by you, not the big financial firms. People who call themselves financial advisors may be paid in a way that creates a conflict of interest, and you don’t want that conflict.
Going with a fee-only advisor may cost more money right now, but it should save you a lot of money in the long run because your advisor will act in your interest. It can’t be stated often enough: He who pays the piper calls the tune. Know who pays your piper (preferably you!).
3. They focus on motivating you
The best financial advisors not only develop a financial plan for you, they also help you stick to it. They energize and motivate you to meet your goals. The best financial plan in the world won’t matter unless you have the determination to see it through, and that means a long-term commitment measured in years.
“The most important role of the financial advisor is to help a client get the most out of their financial lives — be the most effective catalyst for them, light the fire under the client,” Garrett says. Advisors have to get clients to buy into the plan so that it really works for them.
The most important role of the financial advisor is to help a client get the most out of their financial lives — be the most effective catalyst for them.
Motivation also means keeping clients even-tempered when the markets zig and zag, as they inevitably do. The best advisors focus on behavioral finance, Hauptman says, reinforcing clients’ good behavior, managing their expectations and making sure they’re not chasing performance.
4. They’re clear about your relationship
When you hire a financial advisor, you’re looking for someone who’s going to be with you for years, so you want to be absolutely clear on the relationship. Whom will you work with? How often will you meet? How will you pay the advisor? These are all questions you need to answer.
Hauptman explains: “The best advisors provide pre-engagement disclosures. They provide a plain-English summary about the relationship, the services and products, and how the client will pay for those products.” The best advisors will also show you how they’re paid and any conflicts of interest they might have.
The best advisors are interested in your welfare and will clearly detail what you need to know before you decide.
The best advisors are interested in your welfare and will clearly detail what you need to know before you decide. Garrett says: “Investigate the advisor beforehand online. Invest some time interviewing them. Take your time. Don’t let anybody rush you.”
5. They shape a plan that meets your needs
Everyone walks into an advisor’s office with a different situation, goals and expectations. The best advisors listen to you and shape a financial plan around your requirements.
“The best financial advisors have the ability to connect and get to know what clients really need as quickly and efficiently as possible,” Garrett says. That means an advisor must actively listen and empathize with the client, structure a plan around those needs and then show how the plan fits together.
Above all, find an advisor who wants to help you meet your goals, even if that means helping you find out what your goals are.
“The best advisors aren’t the most brilliant — they’re the one most appropriate for you,” Garrett says.