How do I Find a Good Advisor?

The WARY tool may provide assistance in comparing and selecting advisors.

While numerous studies have shown that the average advisor is unable to add much value in terms of consistently picking stocks, timing markets or recommending superior fund managers, this doesn’t preclude the possibility that some advisors can provide useful advice and play a constructive role.

Many investors feel intimidated by financial markets. A trustworthy advisor can help them sleep better at night, which can be especially important during times of distress, when fear and anxiety are strongest and an advisor’s steady hand can provide stability and comfort. In particular, a properly trained Certified Financial Planner™ (CFP®) can evaluate how investments fit into overall needs, including estate planning and tax considerations, among other issues. They can provide advice that leads to more efficient decisions and money savings beyond a pure investing advisory function.

Some investors absolutely don’t want to take an active role in their investments and are happy to outsource this function to professionals, which frees them to spend their time on activities they enjoy more.

We know good coaches exist. The challenge for the investor is to identify them but, unfortunately, that is not a trivial task.

Even well-intentioned advisors can cause your nest egg irreparable harm. Finding the good coaches requires that you always consider the fundamental characteristics:

  • alignment of interests
  • credentials
  • fees

Understanding the concepts of alignment, credentials and fees is part of your necessary and basic education. Basic insight into how financial markets work and the characteristics of financial investments are other important elements of your education. This overall education is mean to assist you in selecting an advisor and in optimizing your relationship with the advisor. In some cases, your knowledge will empower you to replace an advisor in whom you’ve lost faith.

Here are some of the actions you can take in an effort to identify a good advisor:

  1. Check advisor references
  2. Investigate fraud history
  3. Interview several advisors
  4. Get answers to some important questions

In some cases, you will find it necessary to fire and replace your advisor or money manager.

You may also want to keep in mind this list of "Dos and Donts."

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