If you’ve ever wondered about whether to trust your financial advisor, you are not alone. Only one in three people are confident their financial advisor always puts their interests ahead of the advisor’s, and about half of people think their advisor has not been clear about costs and fees of services.
These are the findings of a recent research study done by the Certified Financial Analyst Institute. The good news: investors trust their advisors more than they did in 2016. So that’s something.
Some more interesting takeaways from the report:
- In addition to focusing on client interests first, 84 percent of survey respondents said that full and clear explanation of what they are paying and how they are paying it is important to them. But only 48 percent said they believe that advisors are making those disclosures.
- 80 percent of respondents said they want their advisor to be clear when the advisor’s interests are in conflict with the client’s. But only 43 percent say they feel they get clear information on conflicts.
- And 80 percent again say that they want investment reports to be clear and easy to understand. But only 51 percent say that the reports they get make sense to them.
So if you get a funny feeling sometimes, these reasons could be why.
It also might have to do with your age. The study finds that only 35 percent of people born between 1963 and 1972 say they trust the financial service industry. I think this might have to do with personal history. I am just old enough to be outside this group. I remember some very good investing markets. And I very clearly remember the Great Recession of 2007-2008.
People who are a few years younger than me mostly just remember that recession. So it’s not surprising that it colors their outlook. Generally, when markets are doing well, everybody likes their advisor. When markets are in decline, it’s natural to wonder about your advisor.
Is it a good idea to have a financial advisor?
If you wonder about your “investment guy” here are a couple ideas:
- Ask for a meeting to review how you are doing. Any advisor will welcome this conversation. Most good advisors try to have a comprehensive update meeting at least once each year.
- In the meeting, ask them about their practice.
- What are their other clients like?
- What sort of services does the advisor provide that you don’t use?
- Is the advisor a fiduciary? Always, or just sometimes? If not always, how will you know when they are and when they are not?
- What are all the ways the advisor gets paid?
- Commissions?
- Sales contests?
- Reward trips?
- Referral fees?
- Mutual fund 12b-1 fees?
- Advisory fees?
- Financial planning fees?
- What professional credentials does your advisor have?
- What do the letters after her name mean?
- Why did she choose to pursue those credentials and not others?
- How did she earn the designation? What are the academic requirements, competency exam, continuing education?
What does a financial advisor do?
There are many great services you can get from a financial advisor. I believe strongly that family financial planning is complex enough that most everybody will benefit from outside advice. I also think there’s aggressive marketing of financial products that are really cool. But just because they’re cool doesn’t mean they address your family’s needs.
That’s why I believe so strongly that the single most important factor in selecting a person to advise you on financial matters is this: Do I consistently believe that they are working for my interest and actively trying to help me make progress?
I acknowledge that this is a very subjective assessment. But I’ve been in this business a long time and I believe it’s the correct one.
And, yes, I am a fiduciary. Yes, I get paid only from client fees. And yes, I’m still taking on a few good clients each year.
If this article makes you want to talk about finding an advisor you know you can trust, contact my office at rdunn@dunncreekadvisors.com. I am always happy to meet with people who are sincerely interested in improving their financial life. Dunncreek Advisors does not provide legal or tax advice, nor is this article intended to do so.