Selecting the right financial advisor is an important but difficult decision. Key considerations include whether your prospective advisor has the right technical skills, charges fair fees, and puts your interests first. But which factors should you prioritize when finding the best one for you?
Turns out, you should be looking at psychology. A 2019 Vanguard study found that a client’s emotional relationship with their advisor – not their fees or technical skills – accounts for over half of the perceived value of the engagement. These feelings have real consequences for your bottom line.1
Another series of Vanguard studies found clients who work with advisors 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.2
Here are some 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. Advisors are trained to be respectful and help fulfill all their clients’ goals. But if your goals and values are contrary to an advisor’s, it can be difficult for them to take your perspective and make the best recommendations. Any advisor 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?
Consider what kinds of people you tend to get along with. Remember that you may be spending many years working with your advisor, 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 – quickly.
Communication and coaching
It is critical that you fully understand the recommendations your advisor 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 advisor whose communication style matches your learning style. Often, recommendations take some time to implement and many steps. Some folks struggle to follow through – especially if they have anxiety around money. The best advisors coach their clients throughout the process.
Experience working with people from my background
Individual differences are not the only thing to consider when selecting a financial advisor. Your advisor’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.
That said, the client and advisor don’t need to share a cultural connection to have a successful relationship. Many financial advisors 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 advisor your trust. Exactly how you make that decision is up to you.