April 24, 2022
Robin Powell

How to choose a financial adviser

Robin Powell
Michael E. Kitces

RP: There may be a few people who can manage without, but sooner or later the vast majority of us need a financial adviser. 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 adviser, or financial planner as he prefers to call them, has changed considerably over the years.

MK: If I go back 20 years ago, to need an adviser was basically saying: how else would you find great actively managed mutual funds to pick? You need an adviser to help you pick them, to research and select them. That certainly is dying away. Both struggles in the actively 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’ll find no end to lists and information about it. So the idea of advisers as just providing information about investment opportunities is quickly going away as a value proposition. And what we’re seeing taking its 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, investment, retirement strategies and all the different pieces that go along with it to actually give you a value proposition that’s more than “I’ll pick a couple of investments that could get good returns.”

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

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

RP: But even if you get on with a particular adviser like a house on fire and he has a string of initials after his name, 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 and globally, is the decline of commission-based advisors and the rise of advisers that are either being payed standalone financial planning fees, or perhaps have fees that are attached to investments under management so at least we’re all aligned that – as your investment assets and net worth grows – my business grows as well so I’m very incentivised to make sure that things are growing for you. So managing costs and expenses and getting reasonable performance is actually good for me as the adviser 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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