I was at the gym yesterday when it came to me that picking a fitness regimen is a lot like building your financial plan. I was feeling a bit sheepish as the man next to me, who was clearly 10 years my senior, proceeded to lift more that 3 times what I was capable of. And then, it hit me – our goals are very different. He’s working hard to build muscles, while my goal is to stay fit and in shape.
It’s no different with wealth-building. Joe’s idea of financial success: a boat on the Chesapeake and all the free time in the world to fish it, does not come anywhere near Bob’s: a house down the shore, or Joan’s: staying in her home during retirement and spending time with her grandchildren along with extra money to spend on their education.
That’s why, besides the fees and certifications and other items to ask advisers before hiring one (see Selecting an Advisor at letsmakeaplan.org), there are two more things you need to look for when you are choosing someone to help you with one of the most important tasks you will undertake, building and protecting your future. These two items are a bit less technical in nature – you cannot measure them, per se, but they are what you might call “soft skills.”
A Plan Designed Just for You
Clearly your vision of financial success is different from everyone else’s, you need to know that your adviser is listening to you and delivering on your future. Your finances are personal, and your financial planner’s approach should be too. Are you comfortable with this adviser? Do you feel they are spending the appropriate amount of time with you, understanding what you are looking for? Ask him or her about their methodology for delivering your plan – does it include a step in which they review your current portfolio with you and take the time to fully understand your goals?
An Adviser Who is Prepared to Deliver what YOU Need
Some advisers have a pre-defined methodology that they apply to all of their clients, regardless of what is really appropriate for that client. For example, I met a woman who came to me from another advisory firm, and she was concerned because she had lost money in the prior year, a year in which the market had returned over 11%. She understood that she might not have made as much as the market returned, due to the fact that she held bonds and that there were fees on her portfolio, but, a negative return did not seem right. When I reviewed her portfolio, I found that this adviser had invested her assets in hedge funds and other alternatives, riskier investments that, for the size of her portfolio as well as her financial goals, were simply not going to deliver what she needed. (Read about more situations like this in this AP article Small Investors Blame Losses on Brokers They Once Trusted.)
Right now, there are recommendations within the industry that all advisers be held to a “fiduciary standard,” meaning that advisers can only recommend investments are in the best interest of the client. Financial advisers registered with the Securities and Exchange Commission (SEC) are already held to this standard, but, most brokers are held to a different standard of “suitability,” meaning that an investment must be appropriate or suitable for the investor’s goals, assets size and age. But, until the day comes that all advisers are held to a fiduciary standard, it is investor beware. Ask your adviser how they will determine the best recommendation for you.
Put Your Goals First
It’s true that people with a financial plan have more in savings and feel more comfortable about their financial future, but, build your plan the right way with and adviser who puts your goals first.