What do you look for when you search for a financial advisor to help you reach your financial goals?
How to Hire a Financial Advisor
Based on the Five C’s of Trust
Webster’s Dictionary tells us an advisor is a person who offers thoughtful, wise, and objective counsel. A good advisor seeks our best interest, our good, and our prosperity. An advisor acts much like a coach to an athlete; motivating, teaching, encouraging, and holding accountable. The Bible encourages us to retain good advisors to help us make good choices, to encourage us, and to help us move toward health in all areas of life: spirit, mind, body, and heart. Since it is good to retain advisors, then how should we evaluate those seeking the job? What are those core qualities needed to be a good advisor? Below are a five core qualities to seek in your search for a financial advisor; this search process is what I call the Five C’s of Trust.
1. Competence
Seek a financial advisor with a minimum of ten years of actual portfolio design and financial planning experience. Customer service or management or other non-advice work, doesn’t count. It takes about a decade for the stock and bond markets to run through a full cycle, trough to peak to trough. Its like getting a PhD in the school of hard knocks for an investment advisor to go through a couple of bear markets, much is learned about risk and return and the emotions of fear and greed, and specifically the pain involved in losing money. Those individuals who haven’t experienced a bear market won’t understand the concept of risk and the pain clients feel when they lose money. As a consequence they may make mistakes with your life savings. Those with less experience should work on advisory teams and not be the lead advisers.
Many individuals promoting themselves as financial advisors have little formal education and training in this field and have very little understanding and expertise to guide others. Seek an advisor with formal education as demonstrated by a college degree and credentials, relevant to investment counsel and financial planning. A degree in finance, economics, business, and accounting demonstrate a solid foundational education. The CFP (Certified Financial Planner) designation is essential for financial advisors to get because the body of material that must be mastered to earn the CFP is highly relevant to investment management and financial planning. Other degrees and designations that show competence are the MBA, CPA, and CFA.
2. Comprehensive
Avoid advisors that simply sell mutual funds and annuities, without initially creating a comprehensive financial plan and investment policy statement. Good advisors will take first take the time to work with you to create a comprehensive financial plan, before recommending a product. To this end you will want to work with a fee based wealth management firm rather than a commission driven brokerage or insurance firm. Expect to pay $500 to $1,500 for a financial plan. Caveat Emptor: if the plan is free, that’s probably what it is worth. You need a true financial planner, not a salesperson offering a free plan in order to sell you investment and insurance products. The financial plan is fundamental to your success in reaching your financial goals, and it is also foundational to having a successful and long-term relationship with a financial advisor. The process of creating the plan enables the advisor to see and understand your whole financial situation, which puts them in the best position to offer sound advice.
3. Consistency
Consistency relates to the advisor’s follow through. Does the advisor keep his word, his commitments? These commitments may relate to being proactive rather than merely reactive to your calls and requests. These commitments may relate to communication and face to face meetings. Does the advisor communicate and seek to meet with you as frequently as initially promised? Your advisor should communicate with you a minimum of quarterly, via performance statements that are mailed or emailed, and additionally offer to meet with you face to face semi-annually, if not quarterly.
4. Cost
Seek to understand the total cost of working with the advisor. In the world of investing there are three parties that must get paid: the firm, the advisor, and the investment manager (mutual fund or annuity company). Be sure you understand how much each gets paid. As a general guide, expect the total annual expense to be as follows; an advisor working for a large insurance or brokerage firm: 2%-2.5%, an independent retail advisor: 2% – 2.5%, an institutional wealth management firm: less than 1% – 1.5%. If you don’t think fees matter that much, consider owning a bond that pays 6%, and paying a 2% annual expense ratio; the real return is a meager 4%.
5. Care
It’s essential that the advisor care about you and your welfare, and not just about your wallet. It is his job to be an advocate for you and your future. There is an old wise saying that goes something like this: “No one cares about your money as much as you do, so you must stay involved.” But since it is wise to retain an advisor, you need one who cares about you and your success, one that you trust.
Matthew Alexander, CFP, MBA, MS, CIMA
Partner & Portfolio Manager
Stewardship Wealth Management
Helping Clients Integrate Success with Significance
(p) 913.696.1106 (e) malexander@stewardshipwm.com
Check out our Website at www.stewardshipwm.com
This is not an offer to buy or sell any security. As with any investment, the Stewardship WM can carry significant risk. No investment with Stewardship WM will be accepted without proper legal documentation.
