How to get the most from your financial advisor

There was a time when many believed that financial advisors were only meant for HNWIs. The approach to financial advisory has since changed, with people across the socio-economic strata finding access to such services. However, the democratization of financial advisory doesn’t mean the outcomes are the same. There are reputable advisors, there are less-known but proficient ones, and there are ones merely trying to “push” a product for a commission. While choosing the right advisor is tasking in itself, maximizing the outcome is much more complex. So, if you have arrived at an advisor, what can you do to ensure you get the most from this association?

For starters, you must understand the association for what it truly is — you’re engaging the advisor because he/she knows finance better; you’re essentially placing your financial future in the hands of someone unrelated to you by blood; you’re unsure of the level of trust required. Despite the preliminary talks, many clients tend to have lingering apprehensions and doubts. Fret not because, as one survey(1) found out, 77% of respondents who engaged financial advisors reported that their trust had “improved over time.” So, time, patience, and transparency are of the essence here. The following considerations can help you get off on the right foot. 

Transparency is key

Financial planning as a discipline deals with various case scenarios, market dynamics, risk appetite, etc. While robo-advisory could involve cookie-cutter strategies, financial advisors are hired for their ability to offer personalized and customized solutions. Chances are that your goals and challenges are unique too, in which case transparency is paramount. Being transparent about your financial outlook, history, and status quo will help the advisor formulate the best action plan. Taking this into account, it is advisable to leave inhibitions before you engage the advisor. While it’s not necessarily a tell-all relationship, anything that pertains to money should be factored in, so that the financial advice is not counterproductive to your interests. While it doesn’t require you to be forthcoming from the outset, utmost transparency can be fostered eventually, after the relationship transcends a time frame and familiarity is achieved.

Consistency in engagement

There is a general belief that, while the start of an advisor-client relationship is eventful, it loses momentum gradually, leading to friction in services and a lack of continuity. But it needn’t be so, especially with consistency in engagement. It is essential to lay the groundwork for periodic follow-ups, with communication calendars or other such means. However, efforts should be made by both parties to adhere to the schedule. Consistency is important because advisor-client relationships can go a long way. In such circumstances, critical financial decisions are based on the memory of interactions and the financial history. If the decisions are underpinned by years of consistent engagement, the results will be much better. 

Resolve to constantly enhance competency

In a recent survey(2), 68.3% of fee-only advisors were found to be using technology in their operations. Their rationale is rooted in the belief that “holistic financial planning” has, in recent years, expanded to the use of technologies. For their part, technologies have displayed their utility in seamless transactions, speedy processes, greater transparency, and tracking. Clients have opined that technology enables them to get a holistic view of their investment portfolios, besides envisaging less paperwork. Technology is but one of the ways for advisors to enhance competencies. You can determine an advisor’s competency by their ability to assess risks well in advance and take proactive measures to mitigate the adverse impact. The objective is to ensure that the advisor’s risk-assessment ability improves with time. 

Trust is a two-way street

There is a general consensus in the world that money is the root of all evil. A single glance through the daily newspaper will attest to this notion. As a result, people tend to be reticent when it comes to money matters. However, one must reconcile with the bottom line of involving a financial advisor: To bridge clients’ knowledge gap in finance. So, it’s mission-critical that a degree of trust is established between both parties. With trust, decision making becomes easier, unimpaired by doubts and conflicts of interest. Trust is especially important when the advisor’s move is unconventional and out of the norm. While it’s also important to exercise own discretion before critical investments, one must unequivocally trust the advisors, for they can base the decisions on both empirical and emotional rationale. In addition, financial advisors and clients must understand that trust is a two-way street — both the parties shall give and receive. 

Seek and you shall find

In a survey(3), 72% of respondents said that failure to communicate was the foremost reason behind firing an advisor. But one must also understand that the “why”, “how”, and “when” must come from the client, so that advisors can respond and dialogue is established. However actionable the advice is, the client needn’t receive it blindly without understanding the underlying rationale. So, the next course of action is to ask why. After several such seek-and-find actions, advice becomes more fine-tuned and personalized. Meanwhile, hands-on involvement and effective communications will also help clients enhance their financial knowledge. Here are some of the questions to begin the conversation:

Are you a complete fiduciary? The answer to this question will determine whether or not you can get the most from the advisor. A fiduciary is obligated, by law, to act in the best interests of the client, without external influence. Non-fiduciary advisors tend to “push” certain insurance products, stocks, or intermediaries for the commission they can bring them. The product in question may or may not be the most viable option for the client. 

How much time will you dedicate to my portfolio? Typically, financial advisors have stipulated time they afford each client. It is often established at the time of signing up. However, it is important to delve into details such as the mode of meetings and preferred communication channels. While in-person meetings are preferable, more frequent virtual communications, too, can maximize the service value. 

What are your credentials? The answer to this question will establish accountability or the lack thereof. When the advisor in question is a certified financial planner (CFP) or a chartered financial analyst (CFA) from a reputable institution, clients can rest assured expect greater accountability on the former’s part. At times, such accreditations mandate advisors to fulfil their fiduciary duties with utmost sincerity. 

How do you want to be paid? Perhaps the elephant in the room, this question will allay any residual fears. In the industry, lines often get blurred between financial advisors, salespeople, analysts, and brokers. Depending on how a company or an independent advisor charges, the prospects of maximizing the value can be ascertained. A fee-only advisor, who charges a percentage of assets managed, is a good option. As the fee is tied to the client’s success, the arrangement induces a vested interest for the advisor to succeed. 

When all is said and done, one must understand that professional financial advice is not a ticket to riches. In today’s volatile climate, many seasoned investors will testify that the foremost objective is to hedge and safeguard the value. Against this backdrop, a successful advisor is the one who can effectively assess risks, rebalance the portfolio, and ensure exposure to hedging instruments and bullish asset classes. In any case, the essence is to read the market and be proactive in responding to it. Interestingly, while the majority of the population has faced considerable economic setbacks in the last couple of years, a few investors have raked in significant returns. And most of these winners, if not all, have financial advisors behind the scenes. Is it a coincidence? No. So, if you intend to learn more about the upsides of hiring a financial advisor and getting the most from them, drop a mail to the Continental Group at info@cfsgroup.com.

  1. https://www.capitalgroup.com/ria/insights/articles/3-secrets-of-high-net-worth-clients-revealed.html
  2. https://www.cnbc.com/2019/05/30/technology-helps-advisors-take-financial-planning-to-the-next-level.html
  3. https://www.fa-mag.com/news/top-5-reasons-why-clients-fire-advisors-16238.html?section=43&page=5

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