By Mike Engler, Co-Founder/Managing Partner
Choosing a financial advisor can be one of the most important decisions you’ll ever make. They can influence your financial stability and quality of life for years to come. Let’s take a look at the factors you should consider.
Comfortability and a Personal Connection
Something we emphasize in our own financial planning firm, in Columbia, Md., is the value of the relationship when choosing a financial advisor. After your first meeting, do you feel comfortable with them, is the conversation an easy one, and do you feel optimistic about what they can do for you? Did they ask the big-picture questions that allow them to understand your long-term financial goals, such as funding higher education, buying a home and the lifestyle you picture in your retirement?
Look for synergy and personal connections. You may be at similar points in your lives, with parallel challenges and goals, which creates a shared understanding. You also want someone who is sensitive to who you are and how that shapes your decisions and what you need in the future. Do they show respect, or do they seem dismissive? Do they talk at your level of understanding, or speak over your head? Attitude can deeply affect how well you will work together.
Your goal is to choose a financial advisor you can picture yourself working with for the long-term. This can lead to better service and possibly better results because they understand you so well. Ask yourself, “Will they be there for me, adapt to changes in my life and in the market, and help me meet my goals?”
Experience, Qualifications and Services
Talk to a potential advisor about their professional experience. Years in the industry can certainly be an advantage, but there can also be benefits with someone who may have less experience but possesses a vigor for the profession. They are working hard to find success for their clients as they build their reputations, and they can bring a new perspective.
Ask about your advisor’s professional certifications and licenses, including the Certified Financial Planner (CFP®) designation. It is the standard of excellence, representing education, training and ethics at a high level. Athlon Advisors is unique in that we have advisors licensed for personal lines and property & casualty insurance, and our tax division is headed by a Certified Public Accountant. We can look at your entire financial picture and provide customized guidance from that perspective.
Learn about what services a potential advisor provides. Some are focused on investment management (buying, selling, analysis and monitoring), while other advisors are financial planners who look at the total picture with far-reaching goals. With Athlon Advisors, we provide both, and as an added benefit we can provide insurance, tax and accounting services, plus a combination of services to meet the needs of business owners. We strive for a deep understanding of how all the many aspects of your financial life come together.
Investment Approach and Decision Making
Broadly speaking, there are two types of investment management accounts. With a discretionary account, your advisor has the power to manage your portfolio without your involvement (but a valuable advisor will talk to you first about their investment philosophy and your risk tolerance). This approach leaves the specific investment decisions to the experts.
With a non-discretionary account, an advisor needs your approval before moving ahead with any sale or purchase. Think about how involved you’d like to be in making the decisions about what to buy and when, how much, and when to sell. Do you have the time and interest in monitoring your portfolio? Will you feel confident in your decisions? Talk about these aspects with potential advisors.
At Athlon Advisors, we work within discretionary account agreements the majority of the time, but that doesn’t mean we won’t communicate with you regularly or won’t consider your wishes. It’s a partnership.
Before you choose a financial advisor, you will also want to understand their firm’s investment philosophy, as well as how their philosophy might adjust to where you are in each stage of your life. Some advisors believe in taking risks for the possibility of reward and adjusting a portfolio frequently to move with the trends. Others may take the approach of slow and steady to limit risk and reach long term goals. Seek an advisor who will educate you about risks versus rewards, so that you can have confidence and peace of mind as they manage your portfolio. It’s likely to become your most valuable asset. Be sure to ask if they have a specific process they follow.
Fees and Costs
The cost of an advisor’s service is very important. The types of payment structures are commission (where you, the client, would pay for each individual investment trade) or fee-based (where the advisor charges an annual percentage of the amount you hold in your account with them). Both have their advantages and disadvantages. Make sure you discuss them with your potential advisor to ensure you choose the most beneficial option for your circumstances.
For example, if you purchase a “loaded mutual fund,” you pay a commission up front, which could be between 1% and 5%, depending upon the type of fund. You have no additional direct fees during the time you hold that fund, and you don’t pay anything when you sell. However, if you change funds (typically by moving your money to another fund company), you may pay another up-front commission. In contrast, with a fee arrangement, of perhaps 1% annually, there are no commissions charged. You can change investments often without any additional charges and your fee is transparent and easily discernible.
The industry as a whole is trending towards fee-based arrangements, but we offer our clients a choice. We present the pros and cons of each, making a recommendation depending on the time-frame, frequency of trades, the types of investments held, and the size of the account.
Communication and Availability
Ask a potential advisor about how available they will be to answer your questions and how often you can expect to hear from them. Will they check in with you once a year, or quarterly? Are they available for an impromptu phone call or will you need to schedule a time? How responsive will they be to your emails? If they are on vacation, do they have a support staff or other advisors who can step in? Learn about the other ways they communicate with clients, such as newsletters, webinars or blog posts. Ideally, your advisor will make themselves available to you as often as you prefer. If you feel rushed during your first meeting, that may be an example of what you can expect in the future.
Would you like to learn more about how to choose a financial advisor? We encourage you to call us at (410) 672-8040 or email us at firstname.lastname@example.org