How to Tell if a Financial Advisor Is Right for You

Choosing the right financial advisor could be a critical step towards making sure your finances are headed in the right direction, whether you are trying to save for retirement or looking for tax-advantaged strategies. However, not all financial advisors are created equal.

When seeking a financial advisor to help you manage your money and assets, it is important to consider whether that professional is a good fit for you and your goals.

Of course, one obvious sign that a financial advisor is working for you is that you see your investments allocated as you expected. Those expectations should be set early in the process of your advisory relationship, which in many cases, begins with a financial plan that addresses your financial goals and needs prior to and during retirement.

Investment allocation is only one indicator of a financial advisor’s fit. So, consider several other ways to tell whether a financial advisor is right for you.

Signs That Your Financial Advisory Relationship is Working

Financial advisors should foster a feeling of trust and security. Here are four signs your financial advisor is a good fit:

1.) Good communication. Your investment advice should be clear and your questions should be answered thoroughly. Regular communication, whether through emailed updates or one-on-one conversations, regarding progress toward your financial goals is one consideration when choosing a financial advisor. You should receive official monthly statements summarizing your activity from the firms that are holding your investments, as well as quarterly and annual reports from your advisor.

2.) Understanding your situation. Another important aspect of your relationship with your financial advisor is they ask you questions such as about your debt, job security and goals for major purchases so that they can be sure they understand your specific situation. Your financial advisor is doing their job when they ask about your savings, emergency fund, health status or beneficiary plans.

3.) Willingness to adapt. A financial advisor will listen to your specific concerns and goals, and then tailor a strategy to suit you. They should be willing to change investment strategies as your needs and goals change. And they should be mindful of your particular situation as market conditions change, and then make the changes your portfolio needs in response.

4.) Transparency. Your financial advisor should work with you to make sure that you understand all the fees and payments, including any commission they receive. You should expect them to be forthright about your returns.

Signs That a Financial Advisor May Not Be a Good Fit for You

In a perfect world, choosing a financial advisor would be easy because every financial advisor would be equally capable at helping his or her clients achieve their financial goals. But in the real world that’s just not the case. Some financial advisors have good intentions, but may not be demonstrate the level of service and attention that their clients desire.

You should not be confused about your investments, face surprise charges, or have a feeling of ambiguity about your strategy. Here are three red flags to help you determine whether your financial advisor is right for you:

1.) Poor understanding of your goals. Everyone has different financial goals based on their own expectations, concerns, and considerations. It’s critical that the professional you hire engages in a discussion about your investment goals so that they can develop a strategy and timeline tailored to your needs.

Without a complete understanding of your risk tolerance and investment preferences, a financial advisor is likely to have difficulty implementing a tailored strategy for you.

2.) Ambiguous investment advice. It may be prudent to be wary of broad investment advice that can apply to anyone without specific advice for your own goals. Instead, a financial advisor should present you with investment choices and hear your input on them so you have a say in decisions that affect your wealth.

Be wary of your financial advisor if they do not provide you with an Investment Policy Statement (IPS) that clearly lays out your objectives and your personal risk tolerance. Your financial guidance should be tailored to your needs. Among the investment advice that should raise alarm: investing in only one asset and promises of low-risk, high-return. 

3.) Questionable communication. A financial advisor should be in touch with you as frequently as you like, and they should not ignore the communication method you prefer. If your advisor isn’t returning your calls, consider it a red flag, as they should reliably maintain contact with you. After all, in addition to managing your money, financial advisors are responsible for providing high-quality customer service.

Also, you should be fully informed of payment policies. You should never be caught off guard by fees and payments. Question a financial advisor who lacks transparency about their fees.

What a Financial Advisor Can Do for You

Financial advisors can play a critical role in helping you manage your money so that you can pursue your financial goals at any stage of your life. They typically offer guidance on retirement planning, college trusts, estate management, tax preparation, insurance products and general personal investing.

The Bottom Line

Choosing a financial advisor can be an important part of a healthy financial strategy, so it’s important to make sure you find a financial advisor with whom you are comfortable. Look for an advisor who’s interested in learning about you, your financial goals, and the type of advisory relationship that you’re seeking.

Be mindful of warnings signs that your relationship with your financial advisor may not be working, and monitor how your investments are being managed with a critical eye. You’re in the driver’s seat, so don’t be afraid to ask questions and, if necessary, shop around until you find a professional who’s right for you.