Selecting the right financial adviser is an important but difficult decision. Key considerations include whether your prospective adviser has the right technical skills, charges fair fees and puts your interests first. Focus on these factors and you’ll find thousands of qualified advisers. But which factors should you prioritize when finding the best one for you?
Turns out, you should be looking to psychology. A 2019 Vanguard study found that a client’s emotional relationship with their adviser – not their fees or technical skills – accounted for over half of the perceived value of the engagement. These feelings have real consequences for your bottom line.
Another series of Vanguard studies found clients who work with advisers have better investment returns than those who don’t. To explain this effect, the studies examined the individual impact of numerous factors, including a range of technical skills, like optimizing asset location and implementing the most cost-effective strategies. Turns out behavioral coaching, a psychological factor, accounted for half the total effect – double that of the most impactful technical skill.
While you’re interviewing a prospective adviser, here are some other considerations and questions to ask:
What are your values?
Financial planning is the process of helping clients achieve their goals – whether those goals are to be financially independent, support a charity or anything in between. Advisers are trained to respect and help fulfill all their clients’ goals. But if your goals and values are contrary to an advisers’, it can be difficult for them to take your perspective and make the best recommendations. For example, an adviser who tends to prioritize attaining financial independence may consistently push back on your goal to donate 10% of your income to charity.
An adviser who shares your deeply held values will have an easier time empathizing with your financial situation and is more likely to make recommendations that you’ll implement.
Will we get along?
Would if we could be friends with everyone, but some personalities just don’t mesh. Don’t think you need to overthink this (although you’re welcome to). Consider what kinds of people you tend to get along with. Remember that you may be spending many years working with your adviser, so it helps to like them and feel like you get along.
At a minimum, feel free to avoid working with someone who gives you a bad first impression. While our first impressions are not always accurate, they can tell us a lot – and quickly! For example, one study found it takes just a fraction of a second to decide whether you should trust someone.
How will you communicate your recommendations and coach me?
It is critical that you fully understand the recommendations your adviser is making. Otherwise, you won’t implement them! Consider your learning style. How do you understand things most easily: in writing? With charts and graphs? Whatever your answer, find an adviser whose communication style matches your learning style.
Often, recommendations take some time to implement and have many steps. Some folks struggle to follow through – especially if they have anxiety around money. The best advisers coach their clients throughout the process.
Not all great coaches are the same. Phil Jackson, winner of 11 NBA championships, was known as a “Zen Master.” Bill Belichick, the NFL coach with the most Super Bowl wins, is much more detail-oriented and logistical. Consider what motivates you to stick with a plan and try to find an adviser who fits your coaching needs.
Keep in mind that some folks are better communicators than others. How well an adviser communicates has a real impact on their clients. For example, a study investigating clients’ trust in their financial advisers found the adviser’s communication skills were twice as important as their technical competency.
Do you have good experiences working with people from my background?
Individual differences are not the only thing to consider when selecting a financial adviser. Your adviser’s cultural background and cultural competency can affect whether you have a successful relationship.
When people share similar experiences and backgrounds, they often have an easier time communicating and empathizing with one another. Moreover, financial advising has not always been offered or provided equitably to women, people of color and members of many other minority backgrounds. Research released by The American College Center for Economic Empowerment and Equality underscores this point: Three in five Black women expressed difficulty in finding financial professionals or advisers they trust, per the study. It’s why efforts like the CFP® Board’s diversity and inclusion initiatives are critical to increase the representation of people from all backgrounds in financial planning and meet the needs of our diverse society.
That said, the client and adviser don’t need to share a cultural connection to have a successful relationship. Many financial advisers have excellent cross-cultural communication and cultural competence. Some of the best thinking comes when people with different perspectives can work together to come up with innovative solutions.
Ultimately, you should establish a relationship you value with an adviser you trust. Exactly how you make that decision is up to you. To start that process, consider resources like https://www.letsmakeaplan.org/ and https://www.xyplanningnetwork.com/ that can connect you with advisers held to fiduciary standard.
Assistant Professor of Financial Planning, The American College of Financial Services
Matt J. Goren is an Assistant Professor of Financial Planning at The American College of Financial Services who focuses on the interplay of personal finance and psychology. In addition to teaching and developing content, he provides strategic consulting on financial literacy initiatives and hosts a personal finance radio show, Nothing Funny About Money, which was named 2018’s most outstanding consumer financial information resource by the AFCPE.