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Understanding your choices, and how to select the financial adviser who's right for you



How to choose a financial adviser

In this expert interview, discover how financial advice has changed, and how now more than ever it's critical to select a highly qualified fiduciary who puts you first.

Robin Powell: Hello again. There may be a few people who can manage without, but sooner or later the vast majority of us need a financial advisor. So, how do you go about choosing one?

Michael Kitces is a well-renowned authority on this subject. He says that it’s important to realise that the role of an advisor, or financial planner as he prefers to call them, has changed considerably over the years.

Michael Kitces: If I go back 20 years ago, "Do you need an advisor?" was basically saying how else would you find great actively managed mutual funds to pick. You need an advisor to help you pick them, to search and select them. That certainly is dying away. Both struggles and the active managed fund industry. And to say the least, if a consumer wants to find an actively managed mutual fund, you go to Google and type in “mutual funds” and you find endless information about it. So the idea of advisors providing information about investment opportunities is quickly going away. And what we’re seeing taking this place is the rise of, what I would call, true bonafide financial planning. Which is: I’m actually going to help you draw the holistic picture of all of your investments, goals, everything you’re trying to achieve, I'm going to bring the expertise about the taxes and the investments and retirement strategies and all the different pieces that go along with it to actually give you a value proposition that’s more than, “I’ve picked a couple of investments that could get good returns.”

RP: Sadly, a large proportions of those who call themselves advisors are in fact little more than salespeople. It’s vital therefore who choose one who has your best interest at heart.

MK: A financial advice has to move beyond purely things like investment and insurance product selection, right? Like it needs to actually be about advice, which means to me, first and foremost, you need an advisor who actually has some expertise and competency and training in order to do that. So, does the advisor have a recognised credential or professional education for it? Once you get beyond that then I think it comes quickly comes to your ability to interact with your advisor. Is this someone you’re comfortable with? Is this someone you can communicate with?

RP: But even if you get on with the particular advisor, don’t sign up until you’re sure that, financially speaking, his goals and yours are aligned.

MK: The trend that we’re now seeing, worldwide, is the decline of commission-based advisors and the rise of advisors that are either being paid standalone financial planning fees, or perhaps have fees that are attached to investments and other management so at least for all lines that as your investment assets and net worth grows, my business grows as well so I’m very incentivized to make sure that things going well for you. So managing costs and expenses and getting reasonable performance is actually good for me as the advisor as well as you as the client rather than: “Hey, I’ll sell you a fund and I’ll get paid and if you don’t like it, that’s actually good because that means I can sell you a new one or replace the old one and get paid again."

RP: Thank you to Michael Kitces and until next time. Goodbye.

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