I’ve noticed in my years of helping people with their investments that there seems to be two kinds of financial advisors. The first kind is the one who will say or do anything to make a buck off of you. Sadly, that seems to be the majority of advisors out there. They’re more interested in selling you whatever product will earn them the highest commission, regardless of whether it actually fits your needs.
The other kind of advisor is the one who really does care about your needs. But even those advisors can and will disagree on the best course of action for you. More on that in a second.
So how do you distinguish between the advisor who just wants to make a buck off of you and the one who really cares? My best advice is don’t take anything at face value. Do your research. Meet with the potential advisor and go over your objectives. Treat this as a job interview, because your advisor is really an employee. Read my special report on financial advisor red flags (see bottom of the article for a link to the report) to help you weed out the bad ones. Screen out the ones who try to hide the facts from you or try to hype up any particular investment.
After you’ve narrowed down the list, it’s time to pick the advisor who best matches your values and objectives. And this can be the most difficult – and most important – task.
Very smart, thoughtful and caring advisors can have very different opinions on what makes a good investment. Let’s use the variable annuity as an example. I’ve written extensively on the problems I see with variable annuities. Every time I write one of those articles, I get several emails from financial advisors who I’m sure are very earnest and have a lot of integrity, but they disagree vehemently with my position. And they’ll put forth a very well-thought-out argument stating their case.
I’ve often wondered, how can we both have our clients’ interests at heart and yet come to opposite conclusions? After running into this situation time and time again, it occurs to me that it must come down to what you value and what you place a priority on.
Investing is really just the management of a series of trade-offs. All of investing is about balancing risk and reward, and risk and reward both come in many different forms. An advisor who puts safety and security first and focuses on trying never to lose a dime for his clients will probably recommend low-yielding but very safe investments like CDs and bonds. An advisor like me, on the other hand, who puts a priority on generating a maximum amount of income for you to live on will recommend something different. A CPA who is mostly concerned with minimizing this year’s taxes may tell you that converting a traditional IRA to a Roth is a very bad idea, while I may think it’s a very good idea. We’re both sincere and attuned to your needs; we just happen to think that different things should take priority.
So what’s an investor to do? Before you seek out an advisor, whether it’s an educator or a money manager, think long and hard about your objectives and your values. Find out where your priorities lie. Then ask lots of questions as you interview to find the advisor who best matches up with your needs. When it’s a good fit, chances are you’ll know fairly quickly.
Any financial advisor worth his or her salt will welcome the chance to go over your needs and objectives, and they’ll recognize when their philosophy isn’t a match with yours. When I meet with clients, I can tell when someone is a good fit. If they’re not a good fit, I’ll politely tell them so and try to direct them to another advisor who may be a better match.
I guess finding the right financial advisor is a lot like dating. You’ll meet several scumbags and genuinely nice people who don’t quite fit along the way, but when you find the right match, you know. And the right match makes all the difference.