Solid Expert Tips: How to Pick the Right Financial Advisor

Financial pros weigh in on the most important criteria for finding an advisor that’s right for you (including if your advisor should have more money than you…)

A few days ago, I wrote an article titled, “Eye-Opening Takes from 7 Financial Pros on Spending Too Much, Too Little.”

Eye-Opening Takes from 7 Financial Pros on Spending Too Much, Too Little

I asked the pros for stories about clients who overspend or underspend and how they help them change. Here are their…

themakingofamillionaire.com

Dave Coker

I took exception to one advisor’s take, among other things, quoting an old Wall Street expression that says, “Never take financial advice from someone with less money than you.”

I don’t agree this is a good guide, so I asked financial pros (other than Dave, who’s also a financial expert) what are the most important criteria when picking a financial advisor, and if advisors should be wealthier than their clients.

Introducing the Pros

Here are 7 pros who responded, in alphabetical order:

Brian Behl, CFP®, CRPC®, CDFA®, Owner of Behl Wealth Management

Jorey Bernstein, Executive Director, Wealth Manager, and Founder, Bernstein Investment Consultants

Tim Eichhorn, Partner & Senior Advisor at Rather & Kittrell

Doug Greenberg, President, Pacific Northwest Advisory

Scot Johnson, CFA, Principal & Chief Investment Officer at Adell, Harriman & Carpenter, Inc.

Kevin Lao, CFP®, Founder and Director of Financial Strategies, Imagine Financial Security, LLC

Jon McCardle, AIF, President Summit Financial Group of Indiana

Experts Advice on How to Pick the Right Advisor: 7 Tips

Some criteria were mentioned by multiple experts, while others were offered by just one.

Here are 7 tips, in descending order of number of experts mentioning them.

Credentials, Expertise, and Reputation

Behl suggests, “Work with a Certified Financial Planner (CFP®). This is the minimum standard. It shows the advisor has a certain level of experience, ethical standards, and a clean background; and passed a certification test showing their knowledge.

“Also, make sure the advisor specializes in working with clients in situations similar to yours. If you want help with retirement income transition and minimizing taxes in retirement, find someone who focuses on those and has many clients in similar situations.”

Bernstein agrees, “Look for someone with expertise and experience in the areas you need help with (e.g., retirement planning, investments, taxes, etc.). Look for advisors with relevant professional certifications and years of experience advising similar clients.”

Eichhorn adds, “The prospective advisor’s competency is crucial. Ask questions and assess their responses. Also, ask if the advisor lives up to their promises of service.”

Greenberg mentions several additional certifications, “Look for recognized designations like CFP®, Chartered Financial Analyst (CFA®), or Chartered Financial Consultant (ChFC®). These demonstrate a certain level of expertise and adherence to ethical standards. However, while certifications are crucial, years of experience in advising clients are also important.”

Johnson asks, “Are you looking for someone who can customize an investment portfolio for your unique situation? Do you need financial planning? Do you want tax and estate-planning advice? Many advisors can help clients in each of those areas. Pick someone who offers the specific services you’re looking for and make sure you lay out exactly what you’re looking for in an advisory relationship from the get-go.”

Lao says, “If you’re 60+ and preparing to retire with a large 401k, it doesn’t make sense to work with an advisor who typically helps those in their 20s and 30s.”

McCardle also asks a question, “Do you see signs of success and experience when you meet and interact? I’d never take fashion advice from someone I feel doesn’t understand fashion.”

Communication and Listening Skills

Bernstein says, “An advisor should listen to your specific needs and explain financial concepts clearly. Make sure you feel comfortable and understood.”

Eichhorn feels strongly about this, “Do they listen to what you say? This one is paramount. They aren’t investing their money, they’re investing yours!”

Greenberg agrees, “An advisor should be clear about their investment approach, be readily available to answer queries, and keep you informed about any changes or decisions.”

Johnson also suggests, “Work with an advisor who communicates clearly and at a level that makes you feel comfortable.”

McCardle adds, “Does the advisor offer advice after asking questions and hearing your answers, considering your full financial picture, or do they offer advice without attention to how it will affect your overall picture?”

Fiduciary Duty

Behl says, “If someone won’t give you advice that’s in your best interest rather than their own, run away!”

Bernstein equates this with trustworthiness, “You want an advisor you can trust to act in your best interests, not just sell you products. Look for fiduciary advisors who’re obligated to work for your benefit.”

Greenberg agrees, “A financial advisor with a fiduciary duty is obligated to act in the best interests of their clients, even if it doesn’t align with his or her interests. It’s crucial your advisor is committed to placing your interests first.”

Johnson reiterates this, “Work with a fiduciary, someone who’s duty-bound to act in your best interest. A fiduciary will look out for you first and foremost.”

Lao also agrees, asking, “Does the advisor disclose any conflicts of interest and have your best interests at heart? Better yet, does the advisor avoid conflicts of interest altogether by being a fiduciary?”

Compatibility

Greenberg says, “Your financial advisor should understand your goals, risk tolerance, and financial situation. You should feel comfortable discussing money matters with them.”

Lao puts it like this, “When finishing a meeting with your advisor, do you feel better or worse about your situation? If you regularly feel worse or pessimistic after meetings, it’s time to find someone new!”

McCardle stresses, “Fit means more than you may think. Being comfortable to share your fears and insecurities about your present financial condition is critical. Choose someone who’ll speak with you, not at you! Someone who doesn’t need you as a client.”

Compensation Method

Behl encourages you to “Find a fee-only advisor. Someone who’s only paid by clients, who doesn’t get commissions or kickbacks for selling products like insurance or annuities.”

While not included in the above list, Ramit Sethi famously pushes his audience to hire just fee-only advisors who charge a flat fee or hourly, never a percentage of “assets under management” (AUM).

Honesty and Accountability over Comfort

McCardle asks, “Is the advisor honest or does he try to make you feel comfortable? Honesty is tough but beneficial. Being comfortable when the truth is uncomfortable is overrated, temporary, and rarely beneficial. Does the advisor become your partner and hold you accountable?”

No Nickel and Diming

McCardle says, “A good advisor should be more concerned with how their advice impacts your situation than getting paid. In other words, can you call without having to worry you’ll get charged each time you talk?”

As good advisors should, Behl says, “I highlight [my recommended] criteria during all my introductory calls with prospective clients and encourage them to find an advisor who fits this description for them, even if it isn’t me.”

Should Your Advisor Always Be Wealthier than You?

I share my own opinion below, but I’ll start with the experts.

Behl says, “I don’t necessarily agree with this. I give great advice to clients with a net worth of $5 million or more, while my personal wealth isn’t quite there yet.

“You want someone who makes good financial decisions for themselves (not spending more than they make, not digging into credit card debt, saving for their own goals, etc.), but I don’t think they need to be wealthier to give very good advice.”

Bernstein agrees, “An advisor doesn’t have to be wealthier than his/her clients. While an advisor’s financial success can be a positive sign, it doesn’t guarantee he/she is the best advisor for you. The most important factors are their qualifications, ethics, experience, and ability to communicate well with you.

“Wealth alone doesn’t determine whether someone will provide sound financial guidance tailored to your situation. Many knowledgeable advisors can effectively advise clients even if they have fewer assets themselves. The key is evaluating their competency and fit for you based on the criteria above, not their net worth.”

Eichhorn puts it succinctly, “The best advisors think with your wallet, not theirs. They may or may not have more money than you. You shouldn’t be able to tell.”

Johnson offers an example where an advisor’s high net worth could mislead you, “I don’t know that you need to work only with advisors who’re wealthier than you are. They may simply have been fortunate enough to inherit money!”

Lao adds, “I’m 36, so naturally all my clients over 60 have a higher net worth. I rely on my experience helping hundreds of others, many wealthier than the prospective client at hand. However, I agree advisors should follow their own advice. I happily share my financial plan with any client who asks, to show them I practice what I preach.”

We’ll finish up with Greenberg, who offers a nuanced answer, “The idea that ‘One should never take financial advice from someone with less money than you’ is catchy but oversimplified.

“Wealth Isn’t the only indicator. An advisor’s wealth doesn’t necessarily indicate their expertise, ethics, or ability to manage clients’ finances. Some of the best advisors might choose to live frugally, regardless of wealth, or they may be early in their careers, not having amassed wealth yet.

“Different clients have different needs. An advisor specializing in helping younger clients or those with less money may not be wealthy herself but can still provide valuable advice. On the other hand, an advisor accustomed to high-net-worth clients might not be the best fit for someone just starting to invest.

“Conflict of interest is also important. An overly wealthy advisor, especially if their wealth comes from commissions, might have a conflict of interest. It’s essential to understand how the advisor earns his income — through flat fees, hourly rates, or commissions.

“In conclusion, while an advisor’s financial status may provide some insight, it’s far from the most important consideration. Instead, focus on qualifications, commitment to your best interests, and compatibility with your financial goals and values.”

My Take on Advisors’ Net Worth as a Metric for How Good a Fit They’d Be

First, I understand why someone might want their financial advisor to be wealthier than they are.

You may feel more confident advisors are good at what they do if they can point to their own wealth as proof.

However, a wealthy advisor could potentially be a sign of trouble, e.g.:

They may be overcharging.

They may be putting their own enrichment ahead of your best interests.

They may not pay their taxes in full.

As mentioned above, they may have inherited a lot of money, and if their current fortune is smaller than it was, that would imply they aren’t good with money.

They may have been unsavvy enough to buy lottery tickets but happened to hit the jackpot.

Does this mean a wealthy advisor should be avoided?

Not at all.

However, being wealthier than you shouldn’t be a primary consideration (and FWIW, I don’t think Dave considers it as such).

The Bottom Line

Above, financial pros offer tips on picking a financial advisor who’d serve you well. Not one of them thinks the advisor’s net worth is important.

Personally, I agree with them on what’s important, as well as that net worth isn’t.

Disclaimer

This article is intended for informational purposes only, and should not be considered financial, investment, business, tax, or legal advice. You should consult a relevant professional before making any major decisions.

Written by Opher Ganel