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Choosing the Right Financial Advisor

When it comes to choosing the right financial advisor, there are some important decisions to make.

Whether you’re looking for your first financial advisor or wanting to make a change, there are some important questions to ask yourself and the potential advisor. Obviously you want to make sure you feel comfortable with the advisor. You want someone you can build a rapport with, and who listens and clearly understands your needs, goals, and objectives.

Beyond a personal comfort level with the advisor, there are some specific questions you will want to get clear on. But first, you need to understand your options before meeting with any potential financial advisor.

Your Two Primary Options

Broadly speaking, you have two primary types of financial advisors to choose from: independent and non-independent.

Non-Independent Financial Advisor: These are advisors that typically work for a large brokerage firm or bank (think Merrill Lynch, Wells Fargo, Edward Jones, etc.). They are not necessarily acting as a fiduciary on your behalf, which means your interests may not be held above their own. They may be paid commissions, asset-based fees, or both. But the important takeaway here is this: They do not work for you. They work for the parent company, and are compensated by that company.

Independent Financial Advisor: These advisors do not work for a large brokerage firm or bank. They offer services such as comprehensive financial planning, portfolio management, and investment analysis. They generally have affiliations with various firms that assist with tax planning, money management, estate planning, and more. This allows them to help their clients with complex financial needs.

Independent advisors most often charge fees based on a percentage of your assets under management. So, growing the investment portfolio benefits you both and keeps your interests aligned.

Independent advisors typically manage your assets in an account they open for you with a third-party custodian, such as a bank or brokerage firm. This serves as protection for you, as your funds are always owned and controlled by you. The accounts are in your name and the financial advisor is simply attached to the account in order to manage the investments.

Our firm, Financial Synergies Wealth Advisors, has been doing business as an independent advisory firm for over 30 years. Yes, I am clearly biased in this distinction. But I strongly believe this is the only ethical way to operate in this industry. No matter which advisor you choose, I urge you to select an independent one.

A good place to start your search for a qualified financial advisor is The Financial Planning Association website:

Questions to Ask

Now that you understand the most important distinction between financial advisors, let’s discuss some of the important questions you should ask during the interview process.

  • What are your credentials?

There are some professional designations in the financial advisory industry that really matter. They can tell you a lot about the advisor’s education, training, and areas of expertise. I’ll focus on the top two credentials in the profession.

CFP® (CERTIFIED FINANCIAL PLANNER™) – CFPs have completed university-level financial planning coursework and passed a 10-hour exam covering nearly 90 topics, including investments, portfolio management, taxes, insurance, estate planning, retirement income, derivatives, and more. It is probably the most comprehensive designation in the industry. When it comes to financial planning and investing, there’s not much a CERTIFIED FINANCIAL PLANNER™ can’t handle.

CFA® (Chartered Financial Analyst®) – CFAs must pass three exams, each of which demands a minimum of 250 hours of study and includes corporate finance and financial statements. CFAs are highly trained in the area of investment analysis and portfolio management.

All of our advisors and shareholders at Financial Synergies are CFP® professionals.

  • What services do you offer?

You’ll find that some financial advisors offer a multitude of services, while others are more specialized. In general, financial advisory firms fall into one or more of these categories.

Money Managers – They will choose your investments and manage your portfolio. They design investment portfolios, generally consisting of stocks, bonds, and other individual securities. They often manage the portfolio on a discretionary basis, meaning that you authorize the advisor to trade on your behalf without the need for advance approval from you. They may not offer general financial planning services.

Financial Planners – They’ll review your situation and help with big picture planning. They can help you look to the future and do long-term financial planning in the areas of retirement, college funding, wealth transfer, tax planning, and insurance. They may not offer investing and portfolio management services.

Wealth Managers – If you need an advisor who can handle both your investing and financial planning needs, consider wealth managers. They provide highly customized, comprehensive financial planning, as well as, investment and portfolio management. They’ll coordinate with other professional advisors, such as attorneys and accountants, to serve more complex financial needs, which may include tax minimization, trust management, wealth transfers, portfolio performance analytics, and more.

Financial Synergies is a Wealth Management firm.

  • How are you compensated?

Understanding how your advisor is compensated will help you evaluate their objectivity when making investment or planning recommendations. Independent financial advisors typically work on a fee-only or fee-plus-commission basis.

The main types of compensation and what they mean:

Fee-only – Asset-based, hourly, or flat fees: Many independent financial advisors charge a percentage of the assets they manage for you. This compensation method rewards your advisor for growing your portfolio. Hourly or flat fees are often associated with a specific, one-time service (e.g., developing a financial plan). The fee may vary by account size and service.

Financial Synergies has chosen to work on a Fee-Only basis by simply charging a percentage of the assets we manage. We are paid only by our clients, and receive no compensation from outside companies.

Fee plus commissions – Along with an advisory or financial planning fee, some advisors may receive a portion of the commissions you pay when you buy or sell certain financial products that the advisor recommends, such as insurance policies or annuities.

Commissions only – Advisors sometimes receive only compensation from sales commissions on the investments they buy and sell for you. This method may give the advisor an incentive to recommend that you buy and sell more often.

Wrap fees – Sometimes advisors charge a “wrap fee,” which is typically a single asset-based fee for both the advice they provide and the execution of the trades they make. Under this fee arrangement, make sure they break out the different fees so you know what you’re paying for.

  • What is the client experience?

This sounds cheesy but it’s really important that you understand how you will be working and communicating with your new advisor. Some of the questions you can ask to help set your expectations might be:

Who will I work with? In some cases, the firm’s principal may conduct your initial meeting, and then turn the relationship over to an associate or a team who actually manages it. If personal rapport is important to you, ask to meet personally with the people you’ll be working with.

How often will we communicate? Regular contact helps ensure that you and your advisor are clear about your financial goals, risk tolerance, and investment strategy. Your advisor should meet you in person at least annually – and stay in touch more frequently by phone and email.

How will you report performance? At a minimum, you should expect to receive:

  • Account statements from the advisor or custodian/brokerage firm where your
    assets are held
  • Quarterly summaries of investment performance
  • A comprehensive annual performance report from your advisor

On to the final two questions…

  • How do you approach investment management?

Before discussing investments, an advisor should get to know you, your financial issues, and your goals for today and the future. This will allow the advisor to give investment advice that’s based on a deep understanding of what you want to achieve and that can be tailored to your specific needs.

Investment philosophy and style – Advisors may specialize in certain types of investments (such as mutual funds, ETFs, stocks, bonds, etc.) and styles (such as growth or value). You can assess whether the advisor’s methodology or style aligns with your objectives. Asking about their investment style is a good way to make sure that the advisor can explain his or her approach clearly and simply.

Decision-making and discipline – Advisors who have a disciplined approach to decision-making may be more likely to stay focused on your long-term goals. Many advisors use an asset allocation strategy that has a history of success over time. Your strategy should be based on your goals, time horizon, and comfort with risk. Knowing how often an advisor adjusts portfolios can indicate whether the advisor uses a strategic, long-term approach or invests in short-term trends.

At Financial Synergies, we implement a long-term, strategic, and evidence-based investment strategy.

  • Where will my assets be held?

Independent financial advisors typically use independent custodians to hold and safeguard their clients’ stocks, mutual funds, and other assets. These are generally brokerage firms or banks.

You want to be confident that your advisor has chosen a custodian that meets or exceeds the security measures required by industry regulators to protect your assets.

Look for a custodian with important services like trade execution and preparation of monthly brokerage statements, which will allow your advisor to concentrate on managing your portfolio. Ask about the custodian’s policies to protect both personal and financial information from unauthorized activity.

We’ve chosen to use Charles Schwab to safeguard our clients’ assets. Schwab is one of the largest and most stable custodians in the country.

We hope these questions and discussion points will help you in choosing the right financial advisor.

To learn more about our firm contact us here.

Mike Minter

As Chief Investment Officer, Mike directs the overall investment strategy, develops portfolio allocations, oversees trading and rebalancing, and conducts research and analysis. As a perpetual student of investing and the markets, Mike considers himself obsessed with the subject. He has earned the CERTIFIED FINANCIAL PLANNER™ (CFP®) and Certified Fund Specialist® designations. He is also an active member of the Houston chapter of the Financial Planning Association (FPA).   Read Mike’s Profile HereRead More Articles by Mike

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