Do you have more than one financial advisor? If you do, you’re not alone.
Since 2008, the practice of using more than one financial advisor has grown[i]. Understandably, people are concerned about giving a single individual control over all their investments. That being said, the practice of employing multiple financial advisors is one that, ultimately, may not work in your favor.
To borrow a popular adage: “Too many cooks in the kitchen.” Multiple advisors may result in a situation that may make it difficult to come to any sort of meaningful resolution and which may result in you losing out on significant financial opportunities while your advisors hash out the best course of action.
Then to make matters worse, you may have multiple advisors who are unable to communicate with each other. It is as if you not only have too many cooks in the kitchen, but you’ve now decided to make all of them wear noise-cancelling headphones and look away from each other.
If you don’t know it already, your advisors (financial, legal, tax, etc.) should not discuss your personal and confidential financial information without your express advanced permission. Often this means they will ask you to sign a form stating that your advisor is permitted to disclose this information to other specified individuals and/or advisors.
While you may think that using multiple financial advisors is being clever by hedging your bets and diversifying your portfolio, the opposite may actually be true.
You may be paying multiple fees and attending more meetings for the same investments across the board. If your advisors are unable to communicate with each other, redundant investments may result or even investment strategies that cancel each other out.
So then how do you employ a financial advisor while mitigating the perceived risk of a potentially crooked or incompetent advisor?
If you ever want to check the background of an advisor before hiring him/her, FINRA’s Broker Check is an excellent starting point. Every broker should be listed on FINRA Broker Check along with information such as a thorough background check, disclosures, their licenses, certificates, a listing of states they are licensed in, how long they’ve been licensed, and disciplinary history details, if any.
If for some reason you come across an advisor who is not listed on FINRA Broker Check, FINRA’s first suggestion is that you double check all your spelling, and there are still no results then there is a Hotline to call on their website[ii]. This website tells you that every registered and licensed broker or advisor should be on their website. This should be among your first steps when looking for a financial advisor.
Interviewing a potential advisor to determine how well you might “mesh” is also an important early step. Although the advisor may believe he/she is providing a free consultation, in truth it is also a job interview and it is a time for mutual evaluation. Some things you may want to consider before choosing a financial advisor are:
- What are the hours of operation and times available for meetings? It may be difficult to schedule a meeting with an advisor whose office closes at 2:00 PM when you have work till 5:00 PM. The ability to productively meet digitally may also be important.
- Who are their typical clients, what kind of planning are you looking for and your assessment of whether can they provide that? Not every financial advisor can or will provide the same services, so make sure you know what you want and verify that they can deliver.
- What is their process? Some planners have no process. Some planners have a very deep and sometimes extensive process, which admittedly may work in your favor, because the more they know the better the planning they can deliver. But is that something you want or can commit to?
- Do they listen to you? This is probably more important than you think. However, you will most probably want an advisor who talks to you and not at you. You are not simply accumulating money because you find large numbers aesthetically appealing; you want to do something with that money, so make sure your advisor understands what’s important about money to you, cares about that and addresses the planning for what you care about.
- Do they offer to educate you? We believe a good financial planner should not be afraid to tell you what they’re doing, why they’re doing it, and if you’re still unsure then walk you through the finer details. They need to feel comfortable enough to teach you about finance without fear of you turning your portfolio into a DIY project.
- Will they put their customized advice for you in writing? If not, why not? If you are paying for advice, the advice should be in writing. If you are getting “free” advice, it might be worth what you are paying for it.
- Are their fees clearly disclosed? Are other costs and expenses clearly disclosed? No one should reasonably expect to receive professional services of any kind for free. However, we should all expect honesty, clarity and transparency in assessing the cost of those services. Clearly, this kind of professional service is not a commodity and shopping it based on price alone is probably ill-advised. However, cost is an important factor.
- Do they put your interests first? The word fiduciary has been often associated with this concept, but there may be some discrepancy among various advisors about its meaning. What’s important to consider here is what the advisory contract says (yes you should read it), where potential conflicts of interest may exist and the advisor’s process for disclosing them.
Then once you have selected your financial advisor, it is time to make sure the rest of your team is in place, and I don’t mean your team of financial advisors. If you don’t already have them, you should find a good CPA, an attorney and if necessary a property and casualty insurance agent. All of these professionals should agree to have open lines of communication, so they can provide you with the best service possible.
By doing this you can establish your own system of checks and balances that promotes counseling, discussion and feedback. At the same time, you eliminate redundancy in responsibility in investments and each advisor on your “team” can advise you without having their perspective colored by pursuing their own interests at your expense.
Selecting a financial advisor can be a very important and personal decision, so it is important that you make the right decision. If this blog has sparked questions for you, please feel free to contact one of our team members.
Remember, we are here to help.
[i]https://www.cnbc.com/2018/05/30/are-you-being-unfaithful-to-your-financial-advisor.html
[ii]www.finra.org/investors/brokercheck-search-help
Registered associates of Family Wealth Decisions Group are registered representatives of Lincoln Financial Advisors Corp. Securities and investment advisory services offered through Lincoln Financial Advisors Corp., a broker/dealer (member SIPC) and registered investment advisor. Insurance offered through Lincoln affiliates and other fine companies. Family Wealth Decisions Group is not an affiliate of Lincoln Financial Advisors Corp. CRN-2527826-050319