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How to Find a Financial Advisor You Can Trust

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How to Find a Financial Advisor You Can Trust

How to Find a Financial Advisor You Can Trust

More and more people are using financial advisors to help them navigate the complex journey to financial freedom.

But although more Americans are seeking advice on matters of personal finance, they are also less sure that the advice they are getting is trustworthy.

Unfortunately, a growing amount of Americans see advisors as serving their companies’ best interests rather than their own best interests. According to a survey by The National Association of Retirement Plan Participants (NARPP), 60% of Americans now feel this way compared to just 25% of respondents in 2010.

Who Can Be Trusted?

Today’s infographic is from Tony Robbins, and it covers key points from his #1 Best Selling book Unshakeable: Your Financial Freedom Playbook, which is now available on paperback.

The book dissects the investment advisor landscape to show the value of a relationship with an advisor, the legal distinctions between different advisor types, and how advisors are incentivized.

Ultimately, it helps give you the ammo you need to find an investment advisor that will provide you with better service than the rest.

The Value of the Right Advisor

The right financial advisor can help you make better decisions, address your cognitive biases, and use their expertise to save you massive amounts of money.

A recent Vanguard study helps quantify the value a good advisor can bring:

  • Lowering expense ratios: 0.45%
  • Rebalancing portfolio: 0.35%
  • Asset allocation: 0.75%
  • Withdrawing the right investments in retirement: 0.70%
  • Behavioral coaching: 1.50%

Total: 3.75% of added value!

That’s more than 3x what a sophisticated advisor might charge, and doesn’t include the benefits of reducing taxes or other areas.

Advisors vs. Brokers

There are roughly 310,000 people in the U.S. who call themselves financial advisors – but they actually fall under two different legal frameworks.

About 90% of this group are brokers, while 10% are registered investment advisors. Confusingly, there is also a significant portion who are dual-registered as both brokers and registered advisors, as well.

What’s the difference?

The two have different legal obligations, as well as differing ways of receiving compensation from clients:

Investment Advisor (RIA)

  • RIAs are registered with the SEC and with the state they are working in
  • Like doctors or lawyers, investment advisors have a fiduciary duty and legal obligation to their clients
  • In other words, they must serve your best interest at all times
  • They also must disclose any conflicts of interest
  • They don’t accept commission from third-parties for their products

How they get paid: They charge a % based on assets managed, or a flat fee for financial advice

Brokers

  • Brokers are usually employed by banks, brokerage houses, or insurance companies
  • The products they recommend have to pass a suitability standard, based on your personal circumstances
  • However, they do not have to necessarily recommend the best product for you

How they get paid: They get commissions for selling certain products to you. They may also charge based on assets under management, as well.

Picking the Right Advisor

Remember, the right advisor can add 3.75% of added value to a portfolio, and that’s before taxes and other areas! With the stakes so high, how can Americans pick the right advisor for them?

Here are the 7 questions Tony Robbins would ask a potential advisor to work with:

1. Are you a Registered Investment Advisor?
If the answer is yes, he or she is required by law to be a fiduciary.

2. Are you (or your firm) affiliated with a Broker-Dealer?
If yes, he or she can act as a broker and receive commissions for guiding you into specific investments.

3. Does your firm offer proprietary mutual funds or separately managed accounts?
These products will likely compensate them with additional revenues, at your expense.

4. Do you or your firm receive any third-party compensation for recommending particular investments?
This is the ultimate question you want answered. You want products to be recommended because they are right for you, not because they give the best kickbacks.

5. What’s your philosophy when it comes to investing?
This will help you understand whether your advisor believes he/she can beat the market.

6. What financial planning services do you offer beyond investment strategy and portfolio management?
Financial planning is much bigger than just investing – it also involves planning for your child’s education, handling vested stock options, estate planning, and tax advice. You want someone that can help you in all stages of your life.

7. Where will my money be held?
Having your money held by a trusted third-party custodian will mean your money is in a secure environment.

Like most financial endeavors, picking an advisor is an area lined with potential pitfalls.

But choosing the right investment advisor can be a difference maker – it can even possibly even set you up with many years of extra retirement savings.

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Personal Finance

Ranked: What People Value Most in a Financial Advisor

Positive reviews and recommendations are some of the least important factors—so what do people look for in a financial advisor?

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A bar chart of what people value most in a financial advisor, with the specific qualities removed to encourage people to click into the full article.

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The following content is sponsored by Morningstar

Ranked: What People Value Most in a Financial Advisor

Are advisors putting their focus where it matters? You might think that positive reviews and recommendations would be a top consideration for people choosing a financial advisor. However, other qualities appear to be much more important.

This graphic uses data from Morningstar’s Voice of the Advisor report to outline what people value most in a financial advisor. 

The Qualities Investors Value

Morningstar surveyed 400 people: 100 Caucasian women, 150 women of color, and 150 men of color. The values below show how often people chose an item as most or least important when working with an advisor.

QualityMost ImportantLeast Important
Expertise and knowledge in financial planning and investments60%11%
Personalized financial advice that meets my specific goals and needs54%16%
Ability to understand my risk tolerance and appropriately align my investments47%17%
Specialization in specific financial situations, such as retirement planning45%17%
Ability to communicate complex financial concepts in an understandable way42%22%
Transparent fee structure and pricing for my advisor’s services42%22%
Trust and rapport established during the initial meetings with my advisor36%24%
Ability to incorporate investment options that reflect my values22%41%
Positive online reviews or ratings about my advisor’s services22%46%
Recommendations from friends or family who had a positive experience with my advisor20%47%
Commitment to diversity and inclusion, making me feel comfortable and respected20%47%
Recommendations from other professionals, such as accountants or attorneys19%50%
Shares a similar background or cultural understanding10%68%

Participants were asked the following question: “On each screen, we will show you 3 items to think about when working with a financial advisor. Select which one is most important and which one is the least important of the items. You will see more than one screen and items may appear more than once.”

Enjoying this content? Dive into more insights in the Voice of the Advisor Report:

Report cover titled Four Opportunities to Elevate the Advisor-Client Relationship through Personalization with additional report pages shown. There is also a red button that says Click for exclusive insights.

Even among a survey pool that was mostly people of color, the majority of respondents didn’t think a commitment to diversity or a shared background were important.

Instead, three of the top four factors were related to personalization.

Personalization: A Key Quality in a Financial Advisor

People cared deeply about personalization regardless of gender and race. It was even more important to those with more than $250,000 in assets, suggesting that personalization may become more critical as a person’s portfolio value increases.

Even investors not currently working with an advisor and non-investors noted that personalization would be a top quality they would look for in a financial advisor.

Within personalization, people noted risk management was a very important element. Financial advisors can highlight their ability to tailor financial plans based on each person’s risk tolerance in order to attract clients.

Looking for tips on how to grow your advisory business? Get insights on what investors want, and how other advisors are evolving, in Morningstar’s Voice of the Advisor report.

Report cover titled Four Opportunities to Elevate the Advisor-Client Relationship through Personalization with additional report pages shown. There is also a yellow button that says get the free report now.

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