What to Look for When Choosing a Financial Advisor

When people learn that I have spent my career working with and around financial advisors, they often ask me what qualities they should seek when hiring a professional. My response has dramatically evolved over time. I used to give a typical answer: "You look for a person who is a technical specialist and trustworthy." With wisdom (and gray hair), I now recognize that answer is not wrong, but it is incomplete. There are three distinct qualities you should seek.

Your Financial Advisor Should be a Biographer

A comprehensive financial planning strategy and an estate planning strategy are designed to use the assets and income you have to support the people who matter most in your life. When these strategies are well executed, your plan tells your story. Your story begins with uncovering what makes you happy and what scares you. Your story then explores your values and what you believe. Some examples:

• You believe that memories are better investments than things. 
• You believe that strong family relationships are central to fulfillment. 
• You believe that professional purpose is critical to happiness. 
• You believe that your wealth should be used to allow your children to chase dreams without concern for personal economic success. 
• You believe that economic struggle builds character. 

As you can see, several of these beliefs completely contradict each other. That is exactly how it should be. Your story is different than your neighbor's story, both of which are different than my story.

Next, those beliefs get translated into goals. The beliefs are about your why, the goals are about how you will put them into action. For example, if you believe memories are better investments than things, your plan will be designed to invest in memories, such as annual extended family vacations to meaningful locations. Or if you believe wealth should be used to make your children's lives easier than yours, then your plan could allow generous distributions designed for your children's wants. Alternatively, if you believe children need the pain of economic hardship to become emotionally mature adults, your plan might only provide distributions to them when necessary.

A comprehensive story blends independence, experiences, legacy and social impact. It answers the question of how income and assets should be used to:

• Create financial independence. 
• Allow for memorable and impactful experiences for the people you care for. 
• Provide for your family while you are here and after you are gone. 
• Make the world a better place. 

But telling a compelling story is hard work and great biographers are hard to find. True storytellers penetrate their subjects' souls and get to the essence of who someone truly is. That process takes time — asking thoughtful questions that go beyond the what and how to the why. When done right, a great story opens a window to the soul and a comprehensive plan is the execution of someone's deepest hopes and wishes.

So now, I ask you to consider your plan and your advisor. Does your advisor understand your soul? Does your advisor know your story? Does your advisor care to learn your story? Is your plan the execution of your deepest wishes, hopes, dreams and desires? Or is your plan a collection of generalized "good ideas" for people "like you"? Simply put: Is your plan actually your plan or is it your advisor's plan?

Your Financial Advisor Should be a Mirror

The studies of behavioral economics and neuroeconomics have proven that human beings have neurological challenges that get in the way of their financial goals. When unmanaged, these patterns can prevent proper asset allocation and cause investment decisions based on memorable but irrelevant information. Our best advisors act as objective yet empathetic mirrors to reflect your story back to you. They use their understanding of behavioral finance to help you recognize and manage common biases:

• Loss aversion: People experience the pain of a loss twice as acutely as they experience the joy of an equivalent gain. As such, we tend to overprotect ourselves from actual loss and undervalue the loss from an opportunity not taken. 
• Availability bias: People give greater credence to information they can more easily recall, thereby overweighting information that information that is more recent or more memorable. 
• Framing bias: People can make decisions based on how the information is presented to them — for example, in a positive or negative framework. This can cause investors to act on irrelevant information solely based on how the provider of the information frames it. 

In a world of minute-by-minute news cycles and AI, the risk of receiving and reacting to the wrong information has become even more acute. When you are tempted to give in to these biases and react to irrelevant information, your advisor can remind you of your values, your goals and your plan. These mirrors can reflect your story back to you and then mathematically prove that giving into the fear these biases create will actually move you away, rather than toward your wishes, hopes, dreams and desires.

Your Financial Advisor Should be a Coach

Great advisors focus on you, not themselves. You want an advisor whose sole goal is to uncover what you believe, what makes you happy, what you should do to maximize your happiness and how that gets done. The advisor should also help you figure out what could get in the way of your happiness and how to avoid those obstacles. In other words, you need someone adept at uncovering and solving current and future problems.

When choosing a financial advisor, you should investigate what incentives might get in the advisor's way of being solely focused on uncovering and solving your problems. For example, some advisors are affiliated with organizations that want them to sell their products. Other advisors have sales goals that require them to sell a minimum amount of a certain type of product, such as insurance policies or annuities. Finally, others have affiliations with brokerage houses that offer incentives for selling securities in which they hold a position.

Can these advisors be impartial, objective problem solvers? Sure. But it is important to ask about and understand these incentives so that you can recognize when your advisor has an uncanny propensity to uncover the exact types of problems that an annuity, for example, is designed to solve.

Incentives that create bias are not the only thing to watch out for. Advisors, like all humans, find great comfort in focusing on their areas of specialization. An advisor with a deep knowledge of investments might spend most of a meeting focused on the market, while an advisor who has grown up in the insurance world might focus on the power of whole life insurance and an advisor who is a tax guru may focus on saving taxes.

While all of these skills are helpful, you should not be looking for the advisor who runs around like a hammer and sees all problems as nails. Rather, you should have a detective who considers all issues and helps you prioritize solutions. Simply put, if your advisor keeps uncovering the same problems and offering the same solutions while touting his or her specialized skills, you probably have a salesperson. You need a coach.

This is your plan. It contains your story, your values and your goals. It is designed to maximize your happiness. The advisor's job is not to come armed with solutions seeking aligned problems. The advisor's role is to be your biographer, mirror and coach.

If your advisor is falling short, we would love the opportunity to help you discover your story. Connect with an advisor today.

ABOUT THE AUTHOR

Joe Maier

SVP Director Wealth Strategy JD, CPA | Johnson Financial Group

Joe has extensive experience helping high‐net worth individuals, family offices, business owners and corporate executives meet their wealth and legacy goals. His areas of specific interest and skill include business succession planning, financial and estate planning, and wealth transfer strategies.