For many, growing wealth is the result of years of hard work and sacrifice. Making decisions about how to preserve and build wealth, though, is a team sport and having an advisor to help with key financial decisions should be part of your wealth management plan.
Selecting an advisor is not a one-size-fits-all proposition. There are many different relationship models you can have with an advisor, with varying levels of involvement in decision-making, professional credentials and differing fee structures. How can you choose the advisor that best meets your needs?
The first question you need to ask yourself is, “What do I need from my advisor?” That answer will help inform your next steps. What you need will be largely dependent on your life stage, how long you’ve been in a position of wealth, and your financial goals. Advisors can help with anything from budgeting, investment management, estate planning, to navigating the financial implications of major life events like the birth of a child, divorce, or retirement planning.
The benefits of having an advisor
There are many valid reasons you might want the help of an advisor. Whether you want guidance for complicated planning or investing decisions or simply don’t have the time to devote to managing day-today finances on your own, an advisor can help fill the gap. Some benefits of a financial advisor include:
- Customized planning – An advisor will work with you to build a financial plan that takes into account your personal or familial circumstances and goals.
- Consistent and long-term maintenance – Your advisor should be counted on to check in regularly and make sure you’re on track to meet your goals and make adjustments as life circumstances change.
- Tax-efficiency – Financial planning is more than just choosing the right investments to grow wealth. An advisor can help make investment, retirement, and estate planning choices with tax efficiency in mind.
- Unemotional decision-making – Money is emotional and can lead to rash decision-making. An advisor can serve as a sounding board during tough times to help guide decisions that are consistent with your long-term financial goals.
- Reassurance – For some, the primary role of a financial advisor is less around day-to-day decision-making and more to provide reassurance or a second set of eyes as you make independent decisions around your own money.
- Collective knowledge – An advisor will provide more than just a one-to-one relationship and can draw from the collective knowledge, experience and resources of their institution.
“There is no one defined role that a financial advisor will play for each client they serve,” said Jennifer Lee, head of U.S. Markets for PNC Private Bank. “Each person’s experience will be different, and your relationship should grow and evolve over time as your needs and goals change.”
What to consider
Every person’s relationship with an advisor will be unique, but there are some questions you should ask when determining which advisor is best for you. Three primary considerations are experience, fee structure, and professional accreditation.
It’s important to understand the background and experience of your advisor before committing to them. You’ll want to know what licenses or accreditations they hold, how they’ll work with you on an investment strategy, and whether they have experience serving clients in similar situations as your own. There are numerous professional designations that financial professionals hold, and the acronyms can be confusing. While an accreditation isn’t the only factor to consider when choosing an advisor, most require significant experience and continuing education, so they can be indicative of a professional willing to put in the work for their clients.
You’ll also want to ask about your advisor’s investment management style to make sure it is conducive to achieving your financial goals and aligns with your personal values. If certain investment classes are important to you, you’ll want an advisor who can find solutions that support those goals.
“Wealth is personal and emotional, and it’s important to choose an advisor who is available and receptive to how you want to manage it,” Lee said. “An advisor relationship can be a long-term partnership, so starting with a conversation or two and good questions can be a first step to an informed choice.”
Value for Service
One important contributing factor to your decision will be fees and overall cost. First, it’s important to consider that there is a value to the service, experience and commitment you will get from a professional advisor. An advisor’s expertise in portfolio management, budgeting, and planning can quickly offset the cost of retaining one. Still, you will want to understand the advisor’s fee structure. Most advisors will charge an annual fee based on the value of the assets they are managing for you. An important distinction, though, will be whether they are fee-only vs. fee-based.
- Fee-only advisors charge only the annual fee, which may adjust based on the value of your assets. Fee-only advisors are fiduciaries, obligated to make decisions only in your best interest.
- Fee-based advisors may charge a smaller annual fee but may also earn commission based on certain financial products that they sell you. Some fee-based advisors are fiduciaries, but not all are.
There are other advisor models, but most advisors that you seek for a long-term service will use either the annual fee-only or fee-based models. In addition to the base fee structure, you’ll want to be sure that you’re clear on any additional costs, such as investment fees and taxes so you have an expectation of what your total cost would be to work with that advisor.
"Like anything, deciding on an advisor is about the balance of value for service," Lee said "But making that right choice is an investment that can have tremendous and long-lasting returns."
