Street Sense: Choose Wisely

Street Sense: Choose Wisely

So long April, hellooooo May. Saying goodbye to another month can only mean one thing: it’s Street $ense time! We stayed local this week and turned to an insider for help with understanding an industry term that has become admittedly vague: financial advisor. Starting her career as an estate attorney turned director of financial planning, we thought Commie Stevens would be perfect to demystify what a financial advisor is and how to choose one. In true Commie fashion, she did not disappoint.

Q: What is a financial advisor?

A: “Financial advisor” has become a catch-all term to describe someone that provides advice related to money. Stock brokers, insurance agents, financial planners, accountants and investment managers all get lumped into this category. The term can be used to describe employees that work for large brokerage firms like Fidelity or Schwab or smaller Registered Investment Advisor (RIA) firms. So, the services provided can vary widely in scope.  When choosing an advisor, this – or any other description – isn’t as important as the services offered and if they’re in-line with what you need.

Q: How do I choose a financial advisor?

A: Start by asking friends and family for recommendations. Peruse the advisor’s website to scope out the services they offer and to get a feel for their approach. Then, call to schedule a meeting to see if they will be a good fit (it should be complimentary).

Q: What questions should I ask a potential advisor?

A: Just like any new relationship, before asking questions, you should think about what you’re looking for and your deal breakers. Consider making a wish list of items for which you need guidance and a list of things that are important to you. For example, you might want an advisor who is willing to travel to you for meetings or that considers the impact of taxes when making investment decisions.

Keep in mind that it’s not enough to just ask the questions; you have to also evaluate the responses. My advice is to ask the following questions, keeping a few things in mind:

  1. What services do you provide?  If the response is “investment management” and you are trying to plan for college and retirement, then it’s probably not the right fit. Refer back to your wish list and see how many items the advisor can check off.
  2. Are you a Broker-Dealer or a Registered Investment Advisor (RIA)?  This question will help determine the advisor’s standard of care when making recommendations as they are regulated differently. Read RIA or Broker-Dealer: What’s the Fiduciary Difference? before your meeting to help determine which structure is more appealing to you. The term “fiduciary” may ring a bell because the Department of Labor is working toward extending this standard of care across the broker-dealer space. So, in the future, this distinction may not need to be made but, for now, it’s important.
  3. What can I expect to pay in fees and/or commissions?  What you want to know here is how much you can expect to pay all-in, including fees for financial planning services (i.e., retirement), investment management, underlying investment expenses, transaction costs and commissions that may apply on certain products. Total costs will vary based on a number of factors, some of which are specific to your situation and possibly out of your advisor’s full control. So, be careful when comparing your costs to those paid by others.  Ask yourself if the services being offered are worth the cost. This one is a personal decision.

Also, remember that relationships are personal on some level, even in business. So, while playing the role of interrogator, be aware of the connection you feel (or don’t feel) toward the advisor and listen to your gut.