What To Look For In A Financial Advisor And What Questions Should You Ask Each Other?

This article was contributed by Boomerater Financial Advisor Ricky Rivera, of Safeguard Investment Advisory Group

How can you choose the best advisor for your needs?

First, make sure your adviser is tailoring investment advice to your individual needs.

Consider if you went to the doctor for a health issue and he only wanted to listen to you talk about your sore throat. He never looked inside your mouth, asked about your overall health, took your weight, or looked into your ears and nose. He gave you a prescription that was appropriate for someone twice your size. He never discovered that your ears were infected or that you have chronic reflux that is burning your esophagus. You leave the office with medicine that might actually harm you, symptoms that will continue to worsen, and an outlook that is contrary to every goal you went in for in the first place!

Planning for financial health isn't different. A good financial advisor is going to want to look at the whole of your parts: Where are you now? Where do you want to go? What tools do you have in place or need to put into place in order to accomplish that? Unfortunately many people choose the wrong advisor. They waste critical time with someone who wants to hock their own products or puts too much emphasis on their own philosophy rather than listening and customizing the best advice for the individual.

Because every investment has its advantages and disadvantages you must weigh these things to see if it makes sense for your particular situation. Don't be afraid to get a second opinion by an independent advisor, not someone who works for a specific financial or brokerage institution. That's like walking into a golf shop that only sells one brand of clubs, it doesn't matter if there is another brand that is better suited for your swing, they're going to try and squeeze a square peg into a round hole. We know no advisor can control the market, nor predict what direction it is going to go. A good advisor, on the other hand, will focus on the things he can control such as Risk, Fees, Taxes and the like. If you can save 20% in taxes and fees and reduce your risk exposure, how easy is it to make that same 20% year after year in the market? So many advisors are so busy chasing return in the market that they reach over the dollars to pick up the pennies.

Let's Get Specific - What should they be asking and telling you?

  • Are they asking questions? Pay attention to the initial conversation. Are they asking questions more than they are talking? Do they seem more interested in getting to know you or in touting their own product or service? Some of the questions they should be asking: How old are you? What are your goals? Do you have kids headed into college or are you past that stage? Where do you want to be 10 years? 15? 20? Is your current plan of action poised to help you achieve those or not?
  • Are they knowledgeable of the current events and economic news? Tax laws constantly change. Beware of working with financial dinosaurs that aren't aware of events that can benefit or harm you.
  • Are their claims realistic or does it sound too good to be true? Remember the old adage; it's never truer than when it comes to money! "If it sounds too good to be true, it probably is!" Expectations and forecasting should be realistic and attainable. A "red flag" that you're getting poor financial advice is that the projected returns are not considering the management costs for turn-over's and trading.
  • How do you feel? Talking about money can be uncomfortable. But our bodies will often give us signals when we are in a dangerous or false situation. It's worth paying attention to; you may well avoid being scammed. A feeling of trust is important when you make the choice of whose advice to follow.
  • Are they providing you with an "exit strategy"? One major benefit of close monitoring is that negative trends can be discovered quickly. But it's not enough to see them happening. What is the plan of action to staunch the flow of money loss? Make sure the financial advisors you work with have a plan to protect your assets should things take a turn for the worst.

A good advisor is going to be more interested in your "big picture" than in selling a product. If they are truly interested in designing a plan that is in your best interests, they will want to see the documents about your life that apply. Pay attention to what the advisors you speak with emphasize most: if they are spending lots of time talking about their proprietary products and not asking about your financial documents, its giant red flag that they are watching their own interests more than yours.

Good wealth and estate planners should ask to see:

  • Your previous tax statements and returns,
  • All of your current accounts,
  • Full documentation of your current and projected expenses,
  • Your current insurance policies,
  • Any current estate plans, and
  • Your current investment portfolio
  • The right advisor will be thorough, professional, personable, and knowledgeable. They'll look at the whole scenario and customize the best advice for your financial goals. Choosing to work with someone who can't competently accomplish this puts your financial future at great risk.

They should also be willing to run a mock tax return for you to show how the changes they recommend you make will affect your taxes in the years to come. Any change can affect how much you pay in taxes. No decision should be made in a "bubble".

Here's an example: You walk into a bank to buy a few "safe" bonds that have tax-free interest. It sounds like a great deal. But while the interest is tax-free on those bonds, the amount they accumulate is used to gauge and determine how much your Social Security will be taxed. You could end up losing more money with your "tax free" bond later. Anyone advising you and not looking into all your investments and how they correlate could be playing into this conflict.

Whether it's keeping a comfortable retirement lifestyle, or maybe buying that home on the golf course, make sure you find an advisor who is looking at the Big Picture and is not interested in just selling a product. Make sure that you completely understand the plan and investment the advisor is putting together for you. Moving forward without completely understanding what it is you are getting into can cause mistakes to happen. If a mistake occurs all the advisor can say is sorry and you pay the price. It is very important that any plan that is implemented has the flexibility to be modified as the economy or your goals change as time goes on.

What should you ask advisors that you are considering to handle your financial future?

Don't be afraid to interview the advisor in the same fashion you would interview someone for a job. This is someone you're considering to handle your investments and financial future! Don't lose sight of the magnitude and personal consequence of your choice. Go ahead and ask about what licenses they hold. How long have they been in the business? What's their background in the financial services industry? What company or companies do they represent? Do they work with other professionals such as a CPA, and or an Estate Planning Attorney? Honest, informed, interested professionals will be transparent and eager to provide you with the wealth management tools and information you need to make an informed choice. The right advisor is one of the most powerful tools you can have towards financial success.

This article was contributed by Boomerater Financial Advisor Ricky Rivera, of Safeguard Investment Advisory Group