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Whether to hire a financial advisor or not is a question many Americans ponder. And while there are a variety of reasons to do so, it can be difficult to assess whether the advisor is doing a good job or not.
A financial advisor can guide you in your financial journey, no matter where you’re standing, walk you through the best options and help you navigate some complex financial intricacies.
Yet, experts agree that there are some signs to look at to understand whether the one you hired — or are considering hiring — is the best suited for you and is actually doing a good job for you.
Your Advisor Helps You Understand Your Finances and Feel Better About Them
Your financial advisor is doing a good job if you are learning about your own finances and feel better about them, said Jay Zigmont, Ph.D., CFP, founder of Childfree Wealth. While some people focus on returns, it is nearly impossible for a financial advisor to consistently beat the market, he said.
If, instead, they help you understand your investments and ensure you are not taking on more risk than you can handle, that is perfect.
He said he tells his clients he has two goals. “One: I want them to learn how to manage their own finances, and two: I want their finances to be boring so that their life can be amazing,” he said. “Neither are exact measures, but you know if you are making progress on both.”
Your Advisor Listens to You
According to Carla Adams, CFP, founder and financial advisor at Ametrine Wealth, that means not just hearing a few things about you, making a bunch of assumptions and then starting to give you advice.
“A good advisor lets you do most of the talking and wants to hear from your spouse, as well,” said Adams.
Your Advisor Explains Things Clearly and Simply
Your advisor is also doing a good job if they talk to you in language that you can understand and welcomes several questions, rather than seemingly trying to impress you with all their knowledge, with it all going over your head, said Adams.
“An advisor who is truly knowledgeable is able to explain complex concepts in simple terms that his or her clients can actually understand,” she said. “Clients can then truly understand what they’re doing with their money and feel they are a part of their strategy.”
Your Advisor Is Looking at Your Overall Financial Well-Being
Another telltale sign that your advisor is doing a good job is that they focus on your goals in a holistic manner, not simply focusing on investments or just on your retirement goal.
“Everyone has multiple financial goals that they are trying to balance,” said Adams, adding that advisors should be looking at both investments and the big-picture plan.
“I like to say that even if your advisor could somehow get you 20% returns year after year — which, to be clear, I do not believe is possible — if you only have $1,000 saved, then you’re not going to be able to achieve your financial goals,” she added.
Conversely, you could be an amazing saver, but if all of your money is sitting in cash for decades, that probably is also not going to be a good financial outcome, as you miss out on compounding returns and your cash loses value relative to inflation, she explained.
Your Advisor Is a Fee-Only Fiduciary
According to Adams, there is a huge conflict of interest with advisors who are trying to sell you products — whether it be insurance products or pitching investments to you — rather than just asking a fee for their services.
“Are they recommending these products to you because that’s what is really best for you or because that’s what is going to make them money — and get their managers off their backs for not ‘producing’ enough?” she said.
You Understand All of the Fees You Are Paying
Finally, you know your advisor is doing a good job if you understand all the fees, including fees paid directly to your advisor, as well as any commissions, transaction fees and/or underlying fund fees, and understand all the ways in which your advisor is being compensated, she added.
“A good advisor is more than happy to be completely clear and transparent with you about this. If their answers to these questions just add further confusion, that’s a red flag, in my opinion,” she said.
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