How To Evaluate A Financial Advisor
What are the important qualities to look for?
With heightened uncertainty creating a lot of market volatility so far this year, many of you have been reaching out to me lately in worry.
How can a regular investor successfully navigate it all?
What helpful resources are available? And how can we best use them?
Regular viewers of Thoughtful Money’s videos are well-aware of my general rule:
Unless you already have a successful track record of DIY investing through past conditions *like we’re experiencing now*, most ‘regular investors’ should seriously consider leveraging the expertise of a good professional financial advisor who is experienced in protecting client capital through turbulent markets.
To help folks identify, evaluate & select such a “financial quarterback” to work with, I wrote a helpful guide last year called How To Evaluate A Financial Advisor.
Given the latest flurry in requests for it, I thought I’d send it out again today to you. I’ve copied it directly below.
And obviously, if you decide you’d like to talk with one of Thoughtful Money’s endorsed financial advisors — these are the same firms you see on the channel with me week in and week out — you can schedule a free consultation with them anytime by clicking on the button below. They’ll be happy to offer any assistance to you they can:
Most importantly, don’t let your emotions drive you to make hasty investment decisions during times of high uncertainty like right now.
Stay calm. Think things through. Solicit expert help if you feel you need it. Come up with a well-reasoned plan. And *then* take action.
How To Evaluate A Financial Advisor
What are the most important qualities to look for in a financial advisor?
With the markets starting to get more volatile, this is one of the most common questions I’m now hearing from readers.
So to help, I’ve put together my thoughts below into what I hope is a useful checklist.
One of the first things you need to decide as an investor is whether you’re going to:
Manage your portfolio on your own (in which case you should focus on which assets are best for your objectives), OR
Rely on the seasoned experience of a good professional financial advisor (in which case you should focus on picking the right firm)
As you’ve likely heard me say often in my videos, option #2 is the better path for most people.
Because most people don’t have the financial education, the years of experience, the time, and in many cases the desire to shoulder the important and heavy responsibility of actively managing their financial assets.
They have busy lives – full of work and family demands – and would much prefer to have a smart, experienced, trustworthy professional handling the planning and implementation for them.
So unless you already have years of demonstrated success as a Do-It-Yourself (DIY) investor, my strong counsel to anyone serious about protecting and growing their wealth is to focus your energy on finding an advisor who’s a great fit for your goals & needs.
If you’ve already found one, congratulations!
But if you haven’t, here’s the Thoughtful Money checklist for what to look for when evaluating a financial advisor:
Are they well-regarded in the industry? A good reputation takes time to build. And can be easily lost through poor performance, lousy service or bad action. Is the advisor well-regarded by their peers? Do they have a respected brand? What do their clients (both current and former) have to say about them? Do they have at least a 4-star rating on Investor.com?
Have they been in business for at least a decade? Firms that don’t perform well don’t stay in business for all that long. Also, nothing against younger firms that are just starting out, but you don’t want your hard-earned money financing someone’s learning curve. Prioritize businesses that have a long proven track record of success.
Do they have at least $250 million in Assets Under Management? Nothing signals confidence more than committed capital. Money won’t stay where it’s poorly treated. So look for a firm that has successfully attracted and retained at least $250 million in client assets.
Are they in good standing with the regulatory authorities? This speaks for itself. Don’t transact with anyone the regulators are suspicious of. Use FINRA’s Broker Check to see if there are any concerning disclosures.
Are they client-centric? Do they demonstrate they care about you, as a person with important life goals to achieve, versus just the money you may bring to their firm? A good indicator of this is how well they listen to you during your initial discussions with them before signing on. Do they take the time to get to know you and your needs, concerns & hopes? Do they take that information and come back to you with a strategy well-tailored to those? Are they excellent at customer service? If you find that you have important questions that are not being answered or addressed to your satisfaction, that’s a big red flag.
Do they make sure you have a customized plan? Do they have specialists that work with you to create a financial plan BEFORE they start deploying your assets? Look for firms that do. Or, if you have an existing financial plan, do they embrace it (or improve it)? You want your advisor to be crystal clear from Day 1 what success looks like to you.
Do they take a “whole portfolio” approach? In most cases, you won’t have 100% of your wealth invested with an advisor. Separately, you may own other assets like real estate, precious metals, businesses, pensions, etc. Does your advisor take these into account when planning for you, to make sure that your financial portfolio is working in harmony with the other components of your wealth?
Do they offer you direct access to the portfolio managers who make the investment decisions? A frustration I hear all-too-often is how investors feel like “a number” – their account gets assigned a junior staffer and they never get to talk to the people actually managing their portfolio. While the portfolio managers have a busy job, when you have key questions about how your money is being allocated, look for a firm committed to putting you in direct contact with them.
Is risk management something they value and have demonstrated success at? No one has a magic market-beating formula nor a crystal ball. A good advisor is ALWAYS deploying contingencies in case the market goes against their expectations. Ask for a detailed explanation of how the firm protects against downside risks. What hedging techniques do they use? Can they give you recent examples of how their risk management has mitigated losses?
Do they take the macro themes discussed on Thoughtful Money into account when developing their portfolio strategy? Your advisor doesn’t have to think exactly like the experts that are interviewed on Thoughtful Money. But they should be aware of the macro issues that are discussed on this channel and have thought through how to take them into consideration (or not) in their portfolio strategy. If they instead appear to take an overly general or simple approach, it very well be a warning sign that the firm is more focused on closing new customers rather than prudently managing client capital.
Does your gut trust them? If a potential advisor has passed the preceding requirements with good marks, then ask your gut what it thinks. Your instincts are a good barometer of character. Listen to it, especially if it’s sending signs of worry. You want to partner with an advisor who increasingly proves their trustworthiness the more you interact with them. If that’s not the case, listen to your gut and move on.
I hope you find this free checklist of value. Either in your search for a good advisor to serve as your financial quarterback, or as a way to evaluate your current one.
As you know, Thoughtful Money endorses several financial advisors: these are the firms you see in my videos nearly every week — Real Investment Advice (Lance Roberts), New Harbor Financial (John Llodra & Mike Preston), and Rocklinc Investment Partners (Jonathan Wellum).
If you’d like to have a free consultation with one or more of them, you can schedule one anytime by clicking here or on the button below:
These consultations are useful not only for the personalized advice you’ll receive, but they’ll give you a quality benchmark to measure any other advisor candidates against.
At the end of the day, if you’re one of the many who decide to work with a financial advisor, I’m agnostic as to which firm you choose – as long as it’s the right fit for you.
Hopefully the above checklist serves you well when evaluating whichever advisors you end up considering.
Good luck in your journey. And I’ll see you in the next video!
Cheers,
Adam
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