Whenever my career comes up at social events and such, there are always two common questions I’m asked. The first is whether the person asking would benefit from working with a financial advisor. My answer of course is yes, and I could summarise why in a paragraph or two. In the interests of writing an article of more substance I will focus on the other common question, which is what people should be looking for in an advisor.
Before I explain my answer to this question, there is one important factor that overrides all others, and that is finding an advisor that you like on a personal level. Some of the most talented individuals in the industry may not be for you simply because your personalities don’t align. Every interpersonal relationship works better when all parties get along, and a client-advisor relationship is no different.
Beyond being a person you like, there are three main things that make for a successful advisor:
Someone that takes the time to understand what motivates you
A successful financial plan makes use of the assets and income you have to take care of the people and things you care most about in life. It’s a hugely personal matter, and that requires that your advisor properly takes the time to get to know you.
Any initial consultation is going to include generic questions about your financial goals, but a good advisor will look to connect with the client on a deeper level and understand not just what they wish to achieve but how they view the world and what matters most to them.
The clue is in the name, an advisor is not simply there to take a client’s instructions but to offer advice. When an advisor has a solid understanding of how their client thinks and feels it enables them to put their income and assets to best use.
Someone that is not afraid to call out bad decision making
Numerous studies have concluded that psychological phenomena present in human beings can get in the way of their financial goals. For example, people experience the pain of a loss far more acutely as they experience the joy of an equivalent gain. As such, we have a tendency to overprotect ourselves from actual loss and undervalue the lost potential of opportunities not taken. This phenomenon is known as loss aversion, and unmanaged it can present a major obstacle to financial success.
This is just one of many examples, the human brain is a weird and wonderful thing that can on occasion impede our ability to make the decisions that benefit us the most. Absolutely all of us are prone to the odd bad decision, and sometimes we need someone to call us out on them.
As I’ve touched on previously an advisor is not just there to be a yes man. Your decision making will sometimes be off and you need someone that is not afraid to point that out.
Someone capable of offering bias-free advice
Great advisors focus on you, not themselves. You want an advisor whose sole motivation is to maximize your returns in a manner that aligns with your goals and values. This requires that you work with an advisor capable of offering advice free from bias.
Some advisors receive financial incentives to sell specific products, or have targets that require them to sell a minimum amount of a certain type of product, such as insurance policies or annuities. It’s possible for advisors in such a position to still do a good job but it’s important to ask yourself whether such factors may impede on their ability to do what is best for you.
Beyond incentives that could detract from an advisor’s ability to act in your best interest, you also need to consider the potential for personal bias. Advisors, like all humans, find great comfort in focusing on their areas of expertise. It is important that an advisor is able to look past what they feel most comfortable working with and instead focus on the needs of their client.
