What to Look for in a Financial Advisor – Part I: Objectivity

So, you’re ready to take the plunge and hire a financial advisor. You’re all suited up and ready to go. Now, what do you do?

Like most things in life, selecting a financial advisor is simple but not easy. It is simple to find a financial advisor: you go online, search for financial advisors and, within a few seconds, voilà! You have at least 50 names. It’s not so easy, however, to select one of the 50 names.

Selecting a financial advisor is an important decision. The right advisor can help you make informed decisions in a confusing world, keep you focused on the things you need most to focus on, and avoid common mistakes. The wrong advisor can cost you a lot of money.

This blog and the ones to follow is intended to provide you with some straightforward advice on how to find and select a financial advisor that is right for you. In the end, you will have to make your own choice. My hope is that this series of blogs will give you a framework for making it.

Objectivity is Numero Uno

Hands down, the most important consideration in selecting a financial advisor is his or her objectivity. You want an advisor who is on the same side of the table as you. You don’t want an advisor who has an axe to grind or a product to sell.

The bottom line is simple: When you’re choosing a financial advisor, trust is essential. For trust to exist there can be no conflict of interest between you and your advisor.

Not all financial advisors are held to the same standard of care. Independent registered investment advisors are held to a fiduciary standard which means that they are required to put your interests first, ahead of their own like compensation. While you might think that all financial advisors are required to put their clients’ interests first, it is not the case. Other advisors, for example, are held to a “suitability” standard that only requires them to offer products and services that are suitable in light of your investment objective even if they might cost you more.

One of the first questions you should ask when interviewing financial advisors is “What standard of care are you held to when giving investment advice?” Advisors who are held to a fiduciary standard are required to publicly disclose details about their business, fees, affiliations with other companies and conflicts of interest by filing a Form ADV. You can ask the advisor for a copy or you can review the form on the SEC website at www.adviserinfo.sec.gov. Advisors are required to give you Form ADV Part 2 before you hire them. If the advisor you are considering can’t provide you with a copy of his/her Form ADV, then you need to move on and find one that can.

Whether you are starting your search for a financial advisor with a list of recommendations or you have a specific advisor in mind, be mindful of conflicts of interest. Ask the right questions up front to determine if the advisor is held to a fiduciary standard and required to put your interests first.