If you’re feeling overwhelmed by the prospect of managing your investments—or it’s simply not the way you like to spend your free time—it may be time to work with a financial advisor. So how do you find someone you can trust, who understands your priorities and speaks your language?  Kahlilah Dowe, CFP®, of Vanguard Personal Advisor Services, outlines the key qualifications to look for, and personal qualities to consider, when selecting someone to fill this important role.

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Rebecca Katz: So we have had quite a number of questions. Some of the things we’ve talked about kind of feel a little bit complicated to figure out on your own. So we’ve had quite a few questions on how to pick a financial advisor. Lisa in Centerville said, “How do I find one that I can trust?” And then we’ve had others who say, “How do I know I need one?” So I know a few of you have perspectives on this. Why don’t we start with “figuring out whether it’s an advisor you can trust”?

I mean Kahlilah, you’re our resident advisor here.

Kahlilah Dowe: Right. Yes, so I think it starts with finding a firm that you can trust, unless you’re going to go out and vet different financial advisors yourself, which could be a lot of work. So finding a firm that you can trust, that vets financial advisors, and maybe takes some of the work off of your plate would be a good place to start. Finding someone who’s a fiduciary and who is required to put your interests first I think is important.

Someone who has the Certified Financial Planner designation is a good place to start. Referrals from friends. I think understanding, and I would say this about any financial advisor, understanding the compensation structure. So how do they get paid—to make sure that there are no conflicts of interest? So those are some of the basics that I would say you should look at.

When I think about trust though, so trust is built over time, but I think ultimately you need to work with someone—like that feeling you feel when someone has your back. Right, like they call to check on you, they understand you, they know who you are. They’re the person that can effectively talk you off the ledge when you’re thinking about doing something that you shouldn’t do. And not everyone has that kind of rapport with a client.

So I think part of it is just that feeling that you get, almost like with a friend, when you know that they have your back and you know that they have your best interests in mind. And even though that develops over time, you could start out by just making sure that there are no potential conflicts of interest and that at least the firm that they’re working with is a firm that you trust and have confidence in.

Rebecca Katz: Well, it’s interesting you mentioned that—that sort of coaching piece of it. Because Kelly, your group has actually done some really interesting research around that being kind of the big value-add when you hire an advisor, right?

Kelly McShane: Yes, absolutely, so we call it our Advisor’s Alpha research, which means there is this value that advisors add beyond the portfolio management piece—so beyond what you would think traditionally for an advisor of picking your investments. And it comes down to a lot of that trust component that Kahlilah talked about, that relationship piece. How can you trust them? Are they that person you can go to and say, “Hey, I’m feeling this way about my finances. Am I good? What do I do from there?” It’s that additional value that’s so important to look for in an advisor and that behavioral coaching and that kind of being a friend in a way and talking through things is where that value comes from.

Rebecca Katz: So how do you know you’re ready for an advisor? How do you know that you need one? Is there sort of a tipping point?

Kahlilah Dowe: Well, I think there are a few things that you look at. I think for any long-term investment strategy to work, you have to have discipline, and you have to be able to consistently execute your strategy. If you find that you’re having trouble doing that, I think that’s the right time to consult with a financial advisor. If you’re overwhelmed by managing your own portfolio, I think that’s the right time to consult with a financial advisor.

And then I also work with some investors who, while they could manage their own finances—they have the ability to—perhaps they’d just rather spend their time doing something else. Perhaps they just retired and maybe their spouse is a little older than they are; they don’t want to spend their time managing their portfolio. They’d rather be off enjoying their life and doing other things.

So I think that’s also a reason to hire a financial advisor, even if you have the ability to do it yourself.


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