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How to Find a Financial Advisor You Can Trust

By Jake T. Erlendson on March 22, 2021
Categories: CHOOSING YOUR FINANCIAL ADVISOR

Figuring out how to find a financial advisor you can trust is a major step in setting yourself up for long-term financial success and creating peace of mind. As the CFA Instituteopens PDF file explains, trust and value go hand in hand. With a trustworthy personal financial advisor on your side, you’ll be better prepared to make well-informed decisions and manage your wealth throughout every stage of life.

Establishing and earning trust in any relationship generally takes time, so how can you identify a trustworthy financial advisor today?. Following these simple tips, you’ll be equipped with the tools necessary to help guide  you through this process and important decision  towards making the best of your financial future.

What to Look For in a Financial Advisor

A recent CFA Institute surveyopens PDF file revealed that the more educated an investor is, the more likely they are to trust their financial advisor. It makes sense; after all, humans inherently tend to fear what they don’t know. While trust is earned over time, you still need to find a financial advisor you can trust today, so here are three starting points that may help lead you towards a potential trustworthy advisor.

Educating Yourself

You may not know how to hire a financial advisor right now. But educating yourself is the first step in making a great decision for your portfolio and broader financial plan. Start by learning what to ask potential financial advisors during your first conversation. These top 10 questions to ask a financial advisor are a great place to start.

There are a few general topics to focus on most heavily, including:

Fee schedule: A trustworthy advisor will be transparent about how they charge clients for any given financial service as well as any other fees a client may experience in working together. Though there are typical financial advisor fees associated with pay structure, it’s important to read the fine print of any agreement to screen for additional underlying charges that are not clearly stated upfront.

Services included: Check for additional fees or other hidden costs for extra services. Dowling & Yahnke Wealth Advisors, for example, includes most financial planning services as part of the asset-based advisory fee. When interviewing advisors, you need to know exactly what to expect before moving forward.

Advisor certifications: Ask what type of professional certifications the advisor has earned. The two most distinguished designations you’ll see are Certified Financial PlannerTM (CFP®) and Chartered Financial Analyst (CFA).

Referrals: As you build out a wealth management plan, you may need other professionals to help and offer advice, like an accountant or an attorney. Many financial advisors offer recommendations for these additional professionals. Ensure you understand whether or not the advisor is compensated for referrals; if so, the financial incentive may influence their inclination to make the recommendation.

Investment philosophy: A good financial advisor should have a communicable investment philosophy and trading strategy. Be wary of anyone who guarantees quick returns or can’t offer specific suggestions for your personal financial situation.

Finally, be sure to search for a financial advisor who meets your needs. Some may have minimum balance requirements, for instance. Others may have expertise in specialized areas you need, like sudden wealth or executive compensation.

Investment Philosophy

It’s good to have some background knowledge before you ask about a financial advisor’s investment philosophy. That way, you’re well-prepared to understand the details behind what they’re telling you. Here’s a quick overview of six elements of investing that should be part of every financial advisor’s philosophy.

Avoid market timing: Trying to time the market with quick trades is rarely successful on an ongoing basis and may simply result in higher costs and lower investment returns compared to a disciplined investment approach.. When figuring out how to select the right advisor, avoid those who include market timing as part of your financial plan.

Asset allocation: There’s no one-size-fits-all formula for building someone’s portfolio asset allocation. A trustworthy advisor will be straightforward about that and will make recommendations based on your own specific financial goals and objectives.

Rebalancing: Find out how frequently your portfolio is monitored and how often rebalancing occurs. Your personal financial advisor should be poised to help you avoid emotional trades and instead focus on making decisions based on a disciplined investment strategy.

Trading fees: Your financial advisor should address ways to minimize portfolio costs. Ask about trading fees and expense ratios for recommended investments. A good advisor looks at the total cost of trading decisions in order to protect and grow your balance over time.

Taxes: Paying taxes can also impact how much your portfolio earns you. Be sure your advisor touches on tax-advantaged accounts and strategies like tax-loss harvesting. They can even help you create a plan for charitable giving if it makes sense based on your finances and values.

Goal setting: Finally, your financial advisor should use your personal goals as the guiding force behind any recommendation. That means you should actually have a conversation about the purpose of your wealth and what financial goals you hope to achieve at different milestones.

Fiduciary Standard

When it comes to how to choose a financial advisor, you want to choose a financial advisor who puts your interests first. Avoid any potential conflicts of interest by understanding their motivations and their incentives. Finding out how they get paid and why they recommend investments is a great starting point when selecting the right advisor for you.

One way to be sure your advisor avoids conflicts of interest is to limit your search to financial advisors who are held to a fiduciary standard, rather than those held to a suitability standard. A fiduciary has a legal obligation to put your interests ahead of their own and to reduce any conflicts of interests. A suitability standard simply ensures the product is suitable based on the information provided on your financial situation and goals. As an example, a registered investment adviser is a fiduciary whereas a broker or insurance agent are not. There are a few unique requirements that come along with the fiduciary standard, and they make a big difference in what to expect from your financial advisor. They include:

  • Disclosure: When there is a conflict of interest, or an incentive to recommend a particular product, a fiduciary must provide disclosure as to the details of the conflict creating transparency between the adviser and the client.
  • Duty of care: Both an ethical and legal duty to the client which requires advisers to make decisions in good faith and in a reasonably prudent manner.
  • Duty of loyalty: Requires an adviser to be completely loyal to the client at all times and imposes the responsibility to avoid possible conflicts of interest,

Where to Find Recommendations

Now that you know what to look for when evaluating advisors for trustworthiness, it’s time to start the search. According to the CFA Instituteopens PDF file , 73% of investors prefer a human advisor over a robo-advisor. If you’re starting from scratch or coming from an unsatisfactory experience at another firm, you may be wondering where to find a financial advisor you can trust.

Many people naturally reach out to their social network of family and friends to find recommendations. This can be a good starting point, since you can get direct feedback of an advisor’s track record and client service. Plus, you may likely share similar values as those within your social circle.

However, keep in mind your financial needs may not mirror those of your friends and family. For instance, you may need to look for a financial advisor with experience in managing private wealth or more complicated structures. While personal recommendations are a great place to start, make sure the referral does provide the level of service you’re looking for.

Another potential source for finding recommendations is other trusted financial professionals. Your CPA, for example, likely has a strong understanding of your financials and may be able to match you with an advisor who is experienced in areas you need.

Also remember to vet potential advisors using client referrals. While it’s not the only thing you should care about, speaking to existing clients can give an idea of what to expect. You can ask a potential financial advisor for client referrals to get an idea of their strengths.

The D&Y Difference

At Dowling & Yahnke Wealth Advisors, our business is predicated on the trust of our clients. We’re an independent firm that is proud to have been partnering with clients to reach their financial goals for 30 years – having been a fiduciary since day one.

D&Y listens deeply to our clients because we recognize that our job is to support your financial security, as well as your happiness and comfort.

Understanding the important role we have in our clients’ financial live, we’ve built a team culture around the importance of building relationships and education; many of our financial advisors are CFPs and CFAs, and some graduated from the best business schools in the nation. We also work very closely with all our client’s other professional advisors, like tax professionals, estate planning attorneys, and other attorneys, to make sure we connect all pieces of the puzzle as well as leverage other industry expertise.

Bottom Line

Choosing a fiduciary financial advisor you can trust takes some research, but it’s worth the time and effort. Not only will you have better peace of mind that your investments are looked after, you’ll also have confidence in your long-term financial plan.

Ready to start a conversation with a Dowling & Yahnke wealth advisor? Contact us for a complementary introductory meeting.

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