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You hire a financial advisor because you want to increase your net worth. That’s goal number one.
Consciously or not, you also hire an advisor to make your life easier. You lack the time, the confidence or both to manage every aspect of your finances yourself. Rather than spend hours studying everything you need to know to optimize your investments, your insurance coverage and your budget, you’ve chosen to hand those tasks off to someone else.
Make sure you’re optimizing your relationship with your advisor by reviewing this list of seven things they should be doing for you.
1. Offering Advice That’s Truly in Your Best Interest
If you wanted suggestions about what to eat for lunch while trying to lose 10 pounds, who would give you a better answer: a nutritionist or the server at your local hot chicken joint?
The nutritionist might suggest a bowl of butternut squash soup drizzled with olive oil and garnished with pumpkin seeds and goat cheese. The server might suggest a salad with deep fried, diced hot chicken—but hey, you can swap out the blue cheese dressing for low-fat honey mustard and customize your spice level.
You can use this framework to think about financial advice, too. Just as people with varying levels of food expertise face different incentives in their work, so do financial professionals.
An advisor employed by ABC company is only going to offer you mutual funds sold by ABC company that are “suitable” for your risk tolerance and time horizon. They might know there’s a better option, but they’re either not allowed to offer it or they won’t make as much money if they do.
Just like the nutritionist who can suggest lunch options that don’t involve fried chicken, you want an advisor who can recommend any investment from any company. You want a fiduciary with no conflicts of interest, whose incentive is to recommend not just what suits you, but what’s likely to be best for you.
2. Helping You Clarify Your “Why”
It’s hard to delay gratification when you don’t have a strong motivation to do it. Most of us would rather have a Detroit-style margherita pizza and garlic knots delivered to our doorstep tonight than stick a frozen puck in the oven and hope the sacrifice will pay for 12 delicious meals 37 years from now.
Advisors are keenly aware that emotions, not logic, drive most of our financial decisions. They know that exploring your aspirations, fears, hangups, failures and successes is key to helping you understand past financial decisions and make future ones.
You might not know how to save for retirement in your 40s because you’ve always put your kids first, for example. Knowing that providing for your children is your highest priority, an advisor can help you understand why some of your financial choices might actually be hindering that goal—which could motivate you to make decisions that better align with your values.
3. Assessing and Improving Your Financial Literacy.
A good advisor will gradually educate you—without overwhelming you—in the areas where additional information can help you most.
Say you’re planning to have a kid. If you aren’t living paycheck to paycheck, your advisor might talk to you about Roth IRAs for kids and 529 college savings plans.
If you owe $18,000 in high-interest credit card debt, however, they’ll want to focus on minimizing the costs of childbirth and childrearing. That might include reviewing your health insurance coverage, discussing how to discern essential baby expenses from nice-to-haves, and strategizing ways to get the essentials at minimal cost.
Regardless of your circumstances, the explanations should be simple and straightforward. Six in 10 consumers said that simplicity is a top priority for them when engaging with financial professionals, products and services. This finding comes from a 2021 study of ethics in financial services by the American College, which hypothesized that complexity may make consumers distrustful.
By helping you understand what your options are and the pros and cons of each, your financial advisor should help you feel financially empowered—like you’re the type of person who can be financially secure. That said, if you want a deep dive into the details, your advisor should be willing to go there with you, too.
4. Setting Up Regular Check-Ins.
In which scenario are you more likely to stay on top of your dental hygiene:
- The one where you have to call your dentist to schedule every appointment?
- The one where you leave each visit with an appointment card, a soft-bristled toothbrush, a packet of floss picks and special toothpaste that should stop that zing in your lower left molar so you can enjoy ice cream again?
Similarly, you want a financial advisor who’s proactive about meeting with you, not someone you have to chase down. Regular meetings where your advisor can ask whether you’ve notched up your 401(k) contribution rate and find out what’s changed in your life recently are imperative to helping you stay motivated, avoid mistakes and shift strategies when needed.
5. Responding Between Formal Reviews
You might meet with your advisor in February and August to go over the big picture. But what happens when your car gets totaled in March and you want help deciding how to replace it?
Your advisor’s fee structure and schedule should account for providing attentive service any time you need it, especially in your first year as a client when you may have more questions and be making more financial changes.
This doesn’t mean you should expect your advisor to answer your calls at 2:00 am—unless that’s the arrangement you’ve agreed on—or that they’ll be able to drop everything on a Wednesday afternoon to spend an hour with you.
Avoid mismatched expectations by having an open conversation with your advisor about how much time they can spend with you throughout the year, how much turnaround time they need to answer questions, and what happens if you have a financial emergency while they’re on vacation.
6. Having Your Back
It’s hard to think of a major decision—or even a seemingly minor one—that doesn’t have financial implications. Your financial advisor should point out things you might not have considered and help you protect yourself against risks you might be oblivious to.
Let’s say you want to hire a dog sitter while you go to Banff to learn winter wildlife photography. You’re thinking, “I can’t wait to see what I capture with my new EOS R6 II!”
Your advisor is thinking, “I need to ask Amir if he has a personal liability umbrella in case something goes wrong with the dog sitter, find out whether his credit card charges foreign transaction fees, and see what kind of travel medical insurance he has in case he slips and breaks his leg while photographing bighorn sheep.”
Now, there will be times when having your back means telling you things you may not want to hear, like, “Even though you’re planning to pay cash for this trip, it’s still costing you 24% APR because you could be using that money to pay down your credit cards.” It’s up to you to decide what to do with that information, but it’s up to your advisor to help you make informed choices.
7. Providing Value That Exceeds Their Cost
Whether you pay your advisor by the hour, by the year or as a percentage of assets under management, you should be coming out ahead after their fees—and they shouldn’t be afraid to quantify it.
- How much did you save by taking their suggestion to refinance your mortgage?
- How much did you avoid losing to inflation because they educated you about high-yield money market accounts?
- How much will you save on taxes this year thanks to the planning they helped you with?
- How much more did you save for retirement compared to last year because you stopped spending beyond your means?
Their value should be obvious in the first year, when you likely have a lot of room to improve. Things may be harder to quantify in some years than others, however. Even if your advisor is following best practices, you’re likely to have years of negative investment returns, as well as years of incredibly positive returns—but no advisor can predict the stock market.
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