Financial Planning Month – Ask a Wealth Confidant: Finding the Right Fit

October is National Financial Planning Month, and our Wealth Confidants are answering some of your most frequently asked questions. This week, we address a commonly asked question about the right questions to ask when looking for a financial advisor…

Ask a Wealth Confidant:

Q: I have never worked with a financial advisor before, and I don’t know how to find the right advisor for my situation. What questions should I be asking to make sure I find an advisor I can trust and who understands what matters most to me?

A: Evaluating and choosing a wealth management firm or financial advisor can feel overwhelming – there are many firms offering different services, and you want to find the right fit for you. Discerning the differences takes some research.  

At Highland, we want to empower you with the tools for informed decision-making throughout your financial journey. Here are some questions to ask potential financial advisors:

Are you a fiduciary?

An advisor who is a fiduciary is required by law to act in your best interests and put your needs ahead of his or her own, regardless of the situation. This standard also requires that all conflicts of interest must be outlined in advance. Ideally, you will want to work with a registered investment advisor (an “RIA”) who is held to this fiduciary standard. It’s not always obvious whether an advisor is a fiduciary – RIAs are, by definition, fiduciaries, and brokers (who are generally compensated when they make transactions) are typically not fiduciaries.

How do you get paid?

Advisors tend to use a few different compensation models. The most common terms you’ll hear are commission-based, fee-based, and fee-only. If avoiding conflicts of interest is your goal, you should consider interviewing fee-only fiduciaries, who cannot earn commissions and must make recommendations based only on your best interests. The fee that some advisors charge may be a percentage of assets, a flat fee, or even an hourly fee. Watch out for brokers who may claim to be fiduciaries, when in reality they have your assets in a fee-based account.

Keep in mind that the advisor fee is not the only cost you’ll incur. The average all-in cost of an actively managed mutual fund is 2.5%, in contrast to that of a low-cost index fund which is 0.4%. Over time, costs can make a meaningful difference in returns (assuming similar investment performance).

What services do you provide?

Some advisors have great depth and expertise in investments. Others have a passion for financial planning. You want to be sure that your needs match what they are offering.

A true comprehensive wealth manager will take a holistic view of your overall finances, which means reviewing and providing ongoing oversight of your estate plan, taxes, insurance, and proactively searching for opportunities to save you money.

Find out how many clients an advisor works with – if an individual serves 100 or more clients, you are likely to get limited attention. Ask how often you will meet, and whether they have a team working with them. Some advisors will only meet with you on an annual basis, so if you are looking for more support, you may need to find a more hands-on advisor or a firm with a team of people who are available to discuss concerns as they arise.

Keep in mind that your advisor should be evaluating your situation and providing an up-to-date financial plan based on recent balances at least once a year, so you can adjust your savings and spending accordingly.

Who do you work with?

Evaluate whether this advisor is the right fit for your situation. Ask if they work with families with a wide range of net worth, and whether they have experience with your particular financial situation. Are they familiar with the planning intricacies of your profession or business?

Test whether the advisor is a good fit by asking them to explain a financial concept to you. For example:

• How do you determine how much of my money should be in stocks vs. bonds?
• What do you think of annuities?
• How do you determine how much money I can safely withdraw each year?

Can you understand their explanation? If they can’t explain financial concepts in language you can easily understand, move on.

Finding the right financial advisor for your situation can be challenging. At Highland, we strive to help our clients connect their money to the outcomes that matter most. To learn more about how we work with clients, watch this recent video from our founder John Christianson, on the ideas that shape Highland’s unique approach.

If you’re ready to talk to an advisor and get your questions answered, contact us at wealthconfidant@highlandprivate.com. We would love to connect!