You want to hire a financial pro, not a clown.
But how do you make sure you find the right one without wasting a lot of time?
Here are 7 simple steps you can follow to find a real expert to manage your money:
Step 1: Start with your deal-breakers
The least you can ask for is a qualified advisor with the right approach who is paid fairly.
To get on your short list, a candidate must:
- Be a Certified Financial Planner™
- Use a wealth management approach (not investment only)
- Be paid fees, not commissions
Please notice what is not on the deal-breaker list and, more importantly, why it’s not:
- The size of the firm. No firm (big or small) lacks the resources to give you good advice. But a lot of advisors do.
- How close the office is to your house. You want the best, not the closest. Technology makes it easy to stay connected, and you shouldn’t need to meet in person that often.
- How low the fees are. Great advice is priceless. Bad advice will cost you plenty. Do you want the best surgeon or the cheapest surgeon?
- How long they have been in the business. Good advisors get better with age. But age doesn’t magically transform the bad ones into superstars.
Step 2: Get names from the right source
So now where do you find the right people to interview?
Ask someone you trust for a referral, but don’t ask just anyone. This is serious business, not a Friday night restaurant pick.
Ask your accountant, estate attorney, or insurance broker first…in that order.
They know your situation well enough to find someone who works with clients just like you. They also know enough advisors to separate the good from the bad.
If you still need names, ask family or friends. But only ask family members in a similar financial situation to yours.
And if you still can’t get a name, go here to find a CFP® nearby.
How many names do you need? Three is plenty, more than five is overkill.
Step 3: Do a 10-minute pre-screen
Call me old-fashioned, but I’d never share financial information with someone unless I had at least spoken with them over the phone first.
A quick, focused 10-minute phone call is a great introduction as well as a final test for someone to earn that first meeting with you.
Here’s what to ask:
- Are you a CFP®?
- Do you focus on investments only or will you look at my whole financial picture?
- Are you paid fees or commissions?
If (and only if) they pass those first three “deal-breakers”, then ask them:
- What type of clients do you typically work with? (Hopefully folks like you)
- Do you have an investment minimum? (Hopefully they do)
These questions give you a lot of information quickly.
Done correctly, this might save you from wasting an hour with someone who has no shot at winning your business.
Step 4: Watch out for these “red flags”
Every advisor has a slightly different financial planning process. But good approaches share similarities.
Here’s what a “keeper” looks like:
- Asks a lot of questions…some of which you’ve never considered
- Asks about areas beyond investments (insurance, wills, etc.)
- Sells a plan and a process, not a single product
- Makes sensible (but not exciting) recommendations
- Makes fees clear and explains in English what the fees are for.
And here are the warning signs that should raise alarm bells in your head:
- He makes investment recommendations within the first 15 minutes… and it’s an annuity, or (worse) a specific stock
- She makes bold predictions about the market and will invest based on her crystal ball
- He brags about “clients returns” or how he “beats the market” every time
- She tap dances around any questions you have about fees
- He shoves new account paperwork in front of you without a plan.
Big picture: the more you’re doing the talking, the better the advisor.
The more you listen, the more the advisor does the talking: the more likely you’re being pitched a cookie-cutter solution.
Step 5: Do NOT ask these two questions
There are awful articles online with headlines like “5 questions that will make an advisor shake in his boots.” (You may have already read them.)
Here are the questions that come up in those articles most, why you shouldn’t bother with them, and what you’d be wise ask instead:
Bad Question: “What is your track record?”
Good Question: “How will your investment philosophy generate the returns we need?”
First of all, past performance is no guarantee of future performance. You can’t buy past performance, only future performance.
Second, most advisors just don’t have that report to give you. A financial advisor with 100 clients has 100 different goals, time horizons, and risk tolerances to consider.
Some of those clients are regularly adding to their accounts, and some are living off their portfolios in retirement.
Remember, you are hiring a financial advisor to help you create a sound plan and keep you steady at market highs and lows…not a hedge fund manager who will try outsmart the market.
Bad Question: “How much money do you manage?”
Good Question: “Do you work with clients like me?”
There are great financial advisors who manage a little money and some terrible ones I’ve seen who manage a lot of money.
Assets under management are not a reliable indicator because there is no scientific way to interpret the numbers.
Giving good advice and being good at selling advice are two different skills. You want an expert, not a salesman.
A better approach is to get to know what types of clients the advisor works with. You want make sure they have already helped someone in your financial position.
Step 6: Make your final decision
After a bunch of meetings and presentations, one of two things happens.
- Your gut tells you the clear winner
- All the candidates look the same to you
Either way, here are the “final exam” questions to think about before you pull the trigger on your final selection:
- Who seems the most personally committed to your financial success?
- Whose advice can you imagine following, especially when the markets are crazy?
- Who will tell you what you need to hear, not just what you want to hear?
- Whose approach seems the most sensible (and least exciting)?
- Who understands you best?
Finally, consider this advice from Warren Buffett.
In his 1985 letter to Berkshire Hathaway shareholders, he spoke glowingly about two people managing his subsidiaries:
He said not only are they great managers, but:
“…they are precisely the sort of fellows
you would want your daughter to marry.”
Which one is the kind of person (not personality) you would feel happy to have join your family? Go with that one.
Step 7: Give it all to one person
There are really six steps, but some of you may need this seventh step.
Don’t make a non-decision by “diversifying” among three advisors to “see how they do”.
That’s a dangerous idea that could cost you a lot in fees, portfolio gaps and redundancies, not to mention added complexity.
And I see smart people do this all. The. Time.
Most companies have one CEO and one CFO. Most people have one accountant. Why should you have more than one financial advisor?
One advisor can generate all the diversification you’ll ever need.
Read that again.
Pick one advisor or hit the pause button until you find the right one. But please don’t pick more than one.
Here’s the final list again
Now you know what to do.
- Know your deal-breakers
- Ask the right people for names
- Do a 10-minute phone pre-screen
- Watch out for “red flags”
- Do NOT ask the 2 terrible questions
- Make a final decision
- Pick one person or don’t pick at all
Most people hire based on the firm and the portfolio. That’s why most people get it wrong. Don’t do that.
Hire the right person with the right approach.
Follow these steps and you should end up with someone who can successfully grow and protect your family’s hard-earned money.
You might even find that you sleep better at night…