The Right Way to “Shop” for a Financial Advisor

If you are in the market for a new home appliance or a new car, today’s marketplace provides endless resources to help you make your decision.  From online reviews to Consumer Reports, you can find out everything you need to know about a product before ever purchasing it.  Whether you are looking for the best bargain or the highest quality, these tools will help guide you along the way.

Some of these resources have spilled over from the consumer products side to professional services.  You can find all kinds of online review platforms for contractors, medical professionals, and other service providers.  But what about a financial advisor?  How does one go about picking an advisor?  Most do it the old-fashioned way – they work with someone they kind of know, or they ask a friend for a referral.  Some work with an old fraternity brother from college, others use their parent’s advisor, and still, others are working with someone their friend suggested.

All this to say, have you found yourself doing more due diligence on your next blender purchase than you did when choosing your financial advisor?

Today on TOM, we will discuss key questions you can ask your current advisor, or potential future advisor, that will help you make the right advisor “purchase.”

1. How do you get paid?

Ok, this is probably not the question you want to lead off with, but at some time throughout your dialogue, you need a clear picture of how your advisor is compensated.  Why does this matter?  It is simple, incentives drive behavior, and you want to make sure that there are not any incentives that could possibly distract your advisor from giving good advice.

Have you ever been around a salesperson that seemed way too eager for you to make a purchase?  Think about the last time you went to buy a car or perhaps you’ve attended a timeshare pitch.  This eagerness is derived from the incentives involved, many of these folks rely 100% on the commissions generated from the sales they transact.

You should look for an advisor-client relationship that is not commissions based.  Here at The Bahnsen Group, we’ve chosen to hold ourselves to the fiduciary standard which simply means that we are legally bound to act in our clients best interests, eliminating conflict as I’ve described above.

2. How many clients do you serve?

I’ve read a fair amount of “questions you should ask your advisor” articles and I don’t think I’ve seen this question anywhere.  The answer to this question will definitely matter to you.

Advisors only have the capacity to serve so many clients.  Often you will find advisors that have been in the industry for some time have allowed this number to grow beyond what is sustainable and manageable.  Ultimately, it is the client that suffers from this, as the advisor is often less attentive to their unique circumstances, simply spread too thin.

Drawing from my own experience and that of many colleagues in the field, I believe your advisor should not be serving more than 100 clients.

This estimate is also supported by research.  In the 1990s, Robin Dunbar, a British anthropologist, did some research on social networks and came to find that human beings could only maintain a network of about 150 people.  Dunbar informally described it this way, “the number of people you would not feel embarrassed about joining uninvited for a drink if you happened to bump into them in a bar.”

3. What services do you provide?

When it comes to your finances, the investment management part is probably the most exciting for most people – knowing what stocks you own, how the prices moved up or down today, etc.  This may be the most intriguing part of the process, but it is not the only part of the process.  This is why you need to have a clear idea of all the services your financial advisor provides.

Does he or she only provide investment advice? What about estate planning, insurance, tax strategies, cash flow planning, etc.?  These other services may not be top of mind when thinking about a financial advisor, but they are often the most impactful.

You want to look for an advisor with the competency to serve you across all facets of the financial planning process.

4. What is your investment philosophy?

You should expect that your advisor has a clear and understandable investment philosophy.  While the nuances of their strategy may have some complexity to them,  the overarching theme of the philosophy should be logical.  It’s important to ask follow-up questions regarding any parts that you don’t understand.  Understanding the strategy will be key to setting the right expectations.  You need to make sure you agree with your advisors’ approach and that you believe it is a good fit for your situation.

I’d ask my advisor how long they’ve been employing this strategy and what has changed about their philosophy over the years.  You are looking for consistency, and you want to avoid advisors that have a history of shifting their approach towards what is trendy.

If you have an interaction that seems out of sequence with the philosophy that you signed up for, then ask about it.  You want an advisor that has the conviction to stick with the plan – that’s what you hired them for.

5. What is your typical response time?

Again, a question that I don’t often see posed, but a critical one.

We live in a world of long hold times and disappointing customer service.  Most of the time, we just want a quick answer to a question or a solution to a problem, and we shouldn’t have to wait a week for a response.  I’ve always been inspired by our founder, David Bahnsen, as he typically responds to most inquiries within minutes.  I know David’s clients appreciate this about him, and I’ve always tried to model the same for my clients.

Technology allows us to be reachable almost anywhere at any time, and I think it is fair to expect that your advisor have a reasonable response time.  You can define what you think reasonable is and I’d have that conversation with your advice-giver right from the get-go.  Gauge the speed of the response to your initial inquiry as a starting assessment as it’s a good indicator of things to come.

6. Who else will be assisting me?

There are a lot of moving parts when it comes to your finances, and you’ll need a team around you to make sure everything is done right.  There are a lot of solo practitioners out there, and I have a lot of respect for them, but I believe clients will benefit when they have a team serving them rather than an individual.

As a client, sometimes you will have simple questions about making deposits or withdrawals, other times you may need guidance on building out the right estate plan for your situation or employing the most appropriate tax strategy.  You will need a team of professionals around you, assisting you in their specific areas of expertise.  You want to make sure your advisor is equipped with the right partners around them.

7. What type of clients are typically not a good fit for your practice?

I’d end out my questioning with this one.  By giving the advisor an opportunity to describe what type of client is not a good fit, you will learn a lot about who they serve best.  This is also a question that is probably not expected, and for that reason, you are most likely to not get a canned answer.

This simple little closing question will teach you a lot about the person you will potentially be working with.

The Bahnsen Group is registered with HighTower Securities, LLC, member FINRA and SIPC, and with HighTower Advisors, LLC, a registered investment advisor with the SEC. Securities are offered through HighTower Securities, LLC; advisory services are offered through HighTower Advisors, LLC.

This is not an offer to buy or sell securities. No investment process is free of risk, and there is no guarantee that the investment process or the investment opportunities referenced herein will be profitable. Past performance is not indicative of current or future performance and is not a guarantee. The investment opportunities referenced herein may not be suitable for all investors.

All data and information reference herein are from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other information contained in this research is provided as general market commentary, it does not constitute investment advice. The team and HighTower shall not in any way be liable for claims, and make no expressed or implied representations or warranties as to the accuracy or completeness of the data and other information, or for statements or errors contained in or omissions from the obtained data and information referenced herein. The data and information are provided as of the date referenced. Such data and information are subject to change without notice.

This document was created for informational purposes only; the opinions expressed are solely those of the team and do not represent those of HighTower Advisors, LLC, or any of its affiliates.

About the Author

Trevor Cummings

Private Wealth Advisor, Partner

Trevor is a Private Wealth Advisor focused on building customized financial plans for his and many clients of the team.

As the author of TOM [Thoughts On Money], Trevor endeavors to write and speak about financial concepts and principles in a kind of “straight” talk demeanor and posture.

He received his Bachelor’s degree in Organizational Leadership from Biola University and his MBA from California State University, Fullerton.


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