Avoiding The Common Mistakes For Finding A Financial Advisor
Avoiding the phrase ‘I don’t have time…’, will soon help you to realize that you do have the time needed for just about anything you choose to accomplish in life.
Plan to take 60-90 days of methodical work to find a financial advisor for the phase of life and wealth you are in right now. This will save you from having to fire the person you hired in two years.
First, be able to articulate your personal situation. Similarly, if you have personal assets, be able to describe exactly what those assets are and where they are housed. You would be surprised at how many people have no idea what they own. They also generally don’t know why they own them either. Make sure you can describe what you own and why.
Look at your insurance. This might be in your company’s plan. You might have those contracts buried deep in your records. Find them. Make sure you have them available.
First, if you have a retirement plan, find how much you have and what type of account. This might require a conversation with the existing custodian. (A custodian is a financial institution responsible for safeguarding a firm’s or individual’s financial assets. They are often large banks or institutions with the expertise to manage and protect large volumes of assets.) Have that conversation. Ask precise questions. Take notes. Wait a week and ask the questions to the custodian again. See if the answers are the same. This will tell you whether you actually know what you have.
If you have a stock plan with your company, find all of the descriptive brochures and documents. Everything. I have discovered that while all equity compensation plans rhyme, they all have unique differences. This will be important later.
Next, dig out the last couple of years of your tax returns. Have them at the ready.
Begin a search for advisors. First, the low hanging fruit. Ask your friends and coworkers. If you use a tax preparer, ask him or her. Perhaps the custodian your retirement plan uses has a representative. Jot down his or her name (for now.). Seek professionals close to you physically. This is not to say that a long-distance relationship won’t work but make that the exception for now.
Try three types of advisors, an insurance agent, an independent financial planner, and a bank financial advisor.
Now, build out your interview sheet. First be able to describe your general goals, and a rough description of your current assets. Go into each conversation with these two items at hand and a blank sheet of paper. Have your statements, your insurance policies and your tax return ready, but hidden.
Summon your inner journalist at this point. Set up physical appointments for no more than 30 minutes for all six advisors. They should all be willing to take a free 30-minute meeting.
I often see people dissatisfied with their existing financial advisor. They usually bring in statements or contracts. I try to spend as much as 30 minutes asking them what they have and what it is designed to do for them. Often, they do not know.
The advisor will ask a series of questions. Your answers often require you to show them statements and your tax return.
You will walk away after 30 minutes with a general feel for both chemistry and competency. Spend the next 30 minutes writing down how the experience went each time.
I think you should be cautious with those who spend 30 minutes talking about how good they are at their job, or showing you awards they have won. This dialogue needs to be about your needs. Judge them based upon the answers they give to your questions.
Their questions to you will generally show you how much they know about your type of needs. I have found that unless they self-educate, advisors spend their professional careers dealing with a certain level of assets, and if the client grows above that level, their knowledge is limited.
Now, at the end of those 6 meetings, the e-mail dialogue begins. Regulators require all e-mails and texts to be archived. Furthermore, if they type it and send it to you, the answers they give you must be accurate. You should ask e-mail questions like “where will the assets be custodied.” What will it cost to do business with you. You want a legally binding document on these things, not just a verbal conversation.
Now, narrow down your candidates to maybe 2-3 finalists. Finally, don’t be afraid to go back to the well looking for more people at this time. There are tons of financial advisors.
The finalists get my favorite four questions. At this point, you should have developed chemistry with them and feel confident in their competency. You know exactly what kind of reporting you’ll receive and what it will truly cost to do business with them. Plus, they’ve communicated with you across multiple mediums—face-to-face, by email, and probably over the phone—which is very important.
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