A few years back, I had a friend approach me at a BBQ. He had some questions about how his financial advisor was managing his accounts.
Friend: “Yeah, I just don’t know if this guy is doing the right thing for me. We talk every now and then, he seems like a nice guy, but my portfolio hasn’t really gone anywhere.
Plus, every time we chat he has some brand new investment idea he tries to sell me on. And every single time, he talks up his new idea like it’s the Michael Jordan of portfolio management. (My friend is a big NBA fan). His ideas sound good….I’m just not sure I’m in the right situation. I feel like there’s more going on behind the scenes that I don’t see, but I don’t know what questions to ask.”
Me: “Well how did you find him?”
Friend: “A coworker recommended him. Said the guy made him a ton of money a few years ago.”
Me: “How are you paying him?”
Friend: “Well, I’m not really sure. Everything gets wrapped through the account somehow.”
Me: “OK. Let’s take a step back. Maybe it’d help to identify what you’re looking for in an advisor. If you were starting fresh, what would you like an advisor to help you with?”
Friend: “Hmmm. I guess manage my money and help it grow, make sure I’m on track for retirement, and make sure I don’t run out of money after I stop working.”
Me: “So if you were starting from scratch, what qualities would you look for in an advisor? What criteria would you use?”
Friend: “I really have no idea. I’ve never thought of it that way. Plus there’s about a million financial advisors around here, I get information overload. I guess I’d go with someone I know and like, and seems to have a good reputation. What should I be looking for?”
I had to think about my friend’s question for 10 seconds or so. At the time, I was working at Charles Schwab, but strongly considering starting my own firm.
Me: “I think if I were looking for an advisor, I’d try to find someone who’s competent, trustworthy, unbiased, enjoyable, and looks after for my finances for a fair and transparent price.”
Friend: “Whoa whoa whoa. Slow down with the laundry list. That’s a whole lot of stuff I don’t understand. It sounds GOOD though. I need to tend the grill, but let’s reconvene in a few minutes.”
Coincidentally, this was one of the very reasons I was considering starting my own firm. There are about 300,000 professionals in the U.S. today who call themselves “financial advisors” or “financial planners.” But in my opinion, only a small portion of them have the qualities and service model I’d look for in an advisor.
I’ve had this question come up many times in the years since, and my friend isn’t the only one who’s not sure how to evaluate a potential advisor. And without knowing what questions to ask, how can you be sure you’re finding someone trustworthy and competent?
Because of this, I thought it’d be helpful to build a checklist you can use to evaluate financial advisors & planners. If I were looking to hire someone for help with my finances, these are the exact qualities I’d look for and the exact criteria I’d use. And at the very least, hopefully you’ll be armed with a few good questions to ask.