I’ve always found it shocking that people put less time and effort into finding a financial advisor than they do deciding where to go to dinner. It’s one of the most important decisions that adults make, and yet they often make the wrong choice. Sometimes they choose someone with a philosophy and approach that is incompatible with how they live or see the world. Or they pick someone who is too busy to provide enough personal attention. Or they simply select someone who is incompetent or – even worse – dishonest.
Why does this happen, and how can people protect and grow their assets, knowing that they’re in good hands? There’s no single factor that makes an investment advisor good (or bad). Let’s look at a few ways to put the odds in your favour.
1 – The very first thing that you need to check is your advisor’s background
It may be easy to exaggerate or falsify credentials on a resume or LinkedIn page, but a bit of sleuthing can uncover significant issues. Has the advisor ever declared bankruptcy or been sued for misappropriation of funds? Are his or her credentials and licenses up-to-date? Did he or she really earn a university degree? All of these are easy to look up because they are matters of public record. Take the time to do your homework.
2 – Look at the advisor’s results
Financial professionals often play games by overstating their wins and minimizing or hiding their losses. EVERY financial provider in the world has ups and downs – it’s the nature of the business. One bad investment (or even a few) shouldn’t be a dealbreaker. But long-term trends are important. Be sure to ask for a prospective advisor’s full history, not just the cherry-picked highlights.
3 – Ask about risk
You want an advisor who is going to match your tolerance for risks. Most investors spread their money between high-risk/high-reward opportunities and more conservative ones that deliver less yield but are more protected from market volatility. You don’t want a “cowboy” if you’re a naturally cautious person, and people who want the possibility of a big payout aren’t going to be happy with someone who loves mutual funds.
4 – Don’t get roped in by family and friends
Let’s face it, most of us invest with a cousin, a family friend, or someone who is well-known in the community and gets high marks. None of those are inherently bad things – but they’re also not a green light. Even if your brother’s college roommate’s cousin seems like a good guy to invest with, do your homework.
5 – Always ask questions
Nothing lasts forever, and your relationship with your financial advisor shouldn’t be an automatic lifetime contract. Someone could be the right fit now but not the best choice in a decade. Circumstances change, and people do too. Just because someone checks off the boxes on day one doesn’t mean that he or she will evolve along with you as your needs change. For example, if you’re taking care of aging parents, you may want someone with a focus on eldercare and retirement planning.
Again, there’s no single factor that makes an advisor the perfect fit. There are simply too many variables, and circumstances change very quickly. But by asking the right questions, you give yourself the best shot at a solid financial future.
Jesse Kaufman is the CEO of AdviceCheck, which he established in 2019. Formerly a Portfolio Manager at The Kaufman Wealth Group of Richardson GMP, Jesse is a Chartered Alternative Investment Analyst, Chartered Investment Manager, Accredited Investment Fiduciary, and a Fellow of the Canadian Securities Institute.