Last week, I discussed eight questions that you should ask when interviewing a potential financial advisor. But knowing what to ask a prospective advisor is only half of the story.
Before hiring a new financial advisor, or when thinking about whether you should stay with your current advisor, it’s critical that you look in the mirror and do your part to make sure the partnership a success.
The client-advisor relationship is a two-way street and to ensure you are successful long term, both parties need to be fully engaged and prepared to fulfill their responsibilities.
Here are five things that you – the client – should ask yourself before meeting with a financial advisor to ensure that your partnership starts out strong:
5 Questions to Ask Yourself Before Choosing a Financial Advisor:
- What does financial independence look like for me and my family?
- What are my goals and immediate needs?
- What are my expectations in working with a financial advisor?
- Am I a hands on DIY investor or do I prefer a more hands off approach?
- How risk tolerant am I? High, moderate or low?
Asking yourself these five questions is essential before starting a new partnership with a financial advisor. But what else should you do to ensure a strong relationship long term?
7 Exercises for a Successful Partnership with Your Financial Advisor:
- Know yourself and your goals.
- Figure out how involved you want to be.
- Involve your financial advisor in your lifestyle design planning.
- Define key outcomes from the beginning.
- Schedule regular meetings with your financial advisor.
- Set realistic goals and expectations.
- Enjoy your extra free time!
1. Know Yourself
When meeting a prospective client, I always ask a foundational question: What does financial independence look like for you and your family? In most cases, they say a version of “I will have achieved financial independence when my portfolio generates the income I need to live the lifestyle I want.” For example, if a person feels they need $100K to maintain their lifestyle, then they need a strategy that will build an investment portfolio that generates the amount of capital required to deliver $100K for the rest of their lives.
Suggestion: Take the time to figure out what financial independence looks like to you so that you and your advisor have a tangible measure of success for your partnership.
2. Figure Out If You Are a DIY Investor or Looking For An Expert to Lead the Way
In today’s connected world, any investor can get access to a suite of tools that deliver enough information to be your investment advisor, either for a modest fee or for free. But the question isn’t “can I get the information I need?” The questions are “will I know what to do with it?” and “do I have the time to make informed decisions that will ensure my portfolio grows?”.
The reality is that most people either don’t have the knowledge base or don’t have the time – personally or professionally – to do everything on their list properly, let alone take care of their investments. More often than not, when I have seen investors leap into DIY investing without the knowledge or time required, their investments end up getting less than the full attention required to ensure strong growth.
Suggestion: Accept that investing your money requires a commitment of time and expertise. And then be honest with yourself about whether you have both of those qualities. If not, let a qualified professional take care of it for you.
3. Know Your Expectations, Goals, and Immediate Needs
The Total Wealth Planning process includes six connected steps and each step requires your input:
- Retirement planning: Project when you plan to retire and how much income is required.
- Insurance analysis: Determine who is dependent on your income (children, spouse, bank etc.).
- Estate planning: Determine your beneficiaries, executors and attorneys.
- Education planning: Do you plan to fund your children’s tuition?
- Tax minimization/deferral: Can you maximize your RRSPs, TFSAs and whole life insurance policies?
- Immediate needs: Any short-term needs such as mortgage pay down, purchase of a property?
Suggestion: Think through your own situation related to each of the six steps above so you can give your advisor clear and thoughtful input and direction.
4. Define and Communicate Your Outcome
When an advisor prepares an investment portfolio, your risk tolerance and time frame are key considerations (along with other factors). If you are cautious and/or have a short timeframe for investing the funds that will mean that your portfolio will be slanted toward safety, which also means the returns will likely be lower than the major indexes.
The flip side of communicating your profile to your advisor is keeping it in mind when assessing your returns. In order to conduct a fair evaluation of the returns on your portfolio, rather than comparing personal returns to industry benchmarks, establish your own benchmark based on your investment profile that will allow you to accurately and fairly assess your returns.
Suggestion: Talk with your advisor about your investment profile and then assess performance based on your timeframe and risk tolerance.
5. Be Engaged in the Process
Clients usually receive information from their advisor such as investment reviews, market updates and Total Wealth Plan updates. An engaged client reviews this information and asks appropriate questions. Interactions between you and your advisor at regular intervals are crucial to keep you both interested in and focused on the success of your investments. In particular, a lack of interest from you can contribute to a lack of interest from your Total Wealth Planner or investment advisor.
Over 25 years in this business, I have come into contact with the full spectrum of investor personalities and have seen how each approach impacts the advisor-client partnership. I tend to see a spectrum between two extreme personality types that can make it very difficult to have a successful investor-advisor partnership.
At one end is the “Hands Off” type. This person believes that they don’t understand investing and finance and never will. They want to turn their money over to you and follow your advice without question. At the other extreme is the “I Know It All” type. This person typically has a business degree and/or many years of business experience that lead them to believe they have it all figured out when it comes to investing.
The Hands-Off personality abdicates their responsibilities, which makes it hard for the advisor to tailor their investments to their needs and goals, and the I Know It All type doesn’t trust their advisor, which makes it difficult for the advisor to provide their expertise.
The reality is that most clients are somewhere in the middle of these two extremes. And most clients I have worked with are keen to do their part to make the partnership a success.
Suggestion: Make the time to connect with your advisor regularly to ensure you are both giving your investments the attention they require.
6. Wealth Management is a Marathon Not a Sprint
Once you and your advisor have created a Total Wealth Plan – and a process to execute it – you should:
- Update your advisor about any changes in your personal/financial life
- Interact regularly with your advisor
- Document how close you have come to the outcomes you set out to achieve
- Fight the urge to change or abandon a comprehensive Total Wealth Plan at the first market correction or from the influences of social media
Suggestion: Make a plan, stick to it and connect with your advisor regularly to see how things are going and if any course corrections are required.
7. Successful Wealth Management Should Free Your Time
Once you have completed your due diligence and hired a wealth advisor, you should have freed up time to pursue your passions and become a better version of yourself.
Suggestion: Always remember that the entire point of your investment process is to achieve financial independence. That will help you get there sooner and enjoy it when you do.
The process of finding a financial advisor can be overwhelming. It is our job to make that process simpler and easier. Dri Financial Group’s proprietary Wealth Navigator Process is designed with you in mind. Its structured framework helps you make an informed decision and feel confident in our team and management practices before we get started.
We offer you a range of services from creating bespoke financial plans and providing investment advice to helping you take advantage of our investment models. If you would like more information on the Wealth Navigator Process or our team, call me any time at 416.355.6370 or email me at richard.dri@scotiawealth.com.
Beyond helping you manage your finances, we take pride in motivating, educating and helping you expand your financial literacy. We are here to answer any questions you have and to help you feel in control of your financial destiny.
If you are ready to dive deeper into your financial literacy journey, we have a wide range of free tools and educational resources available.
- Subscribe to our Never Retire Newsletter
- Contact us to order a complimentary e-book
- Check-out our latest Wealth Navigator podcast
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READ MORE BY DRI FINANCIAL GROUP:
- I’m getting divorced – Can I live the rest of my life on this settlement?
- 8 Questions to ask your potential wealth advisor
- A tangible plan for living deliberately
source https://richarddri.ca/choosing-a-financial-advisor-in-canada/
Dri Financial Group 