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I believe having the right financial advisor is a good idea, they can provide a lot of value to you. But it has to be the right one. Just because you have a financial advisor, doesn’t mean it’s the best fit for you.
If you already have a financial advisor and feel like it’s not working out for the best, it’s reasonable to rethink the situation. Even if you feel good about your situation, it’s always worth double-checking things. Asking them a few simple questions can help you figure out if it’s the right fit or not.
How Are They Compensated?
Understanding how you pay your advisor is important because it will either seem very fair, or it will create tension. And even though in most cases the fees seem small, they do add up over time, so it’s good to understand. Here are some of the more common fee structures:
Assets Under Management
Most advisors are paid a small percentage of the total assets they help to manage. If an advisor helps manage $1,000,000 and makes 1% of AUM, he would make $10,000.
I think AUM is a good way for an advisor to be compensated for both the advisor and the client. The reason being, is they have skin in the game. If your money is poorly managed and it drops significantly, or if you’re unhappy and decide to take your money and leave, the advisor’s own income decreases. They have a lot of incentive to make sure you’re happy, your money grows but is safe, and that you’re in a position to refer and help them grow their business in the future.
Fee For Service
This usually includes things like financially planning, or reviews. Infrequent events that a client will pay a fee to have completed. It’s more of a transactional interaction than an ongoing service.
This fee structure is most advantageous for people who manage their own investments, but could use a second opinion or help to put together a financial plan or projections.
Services like insurance, mortgages, segregated funds, and annuities often offer the advisor a commission based on what products they provide to clients. As a client, you’re never paying an advisor directly for these types of services. The company providing the service will pay the advisor. So you can think of it like the advisor is working for you, for free.
What Other Services Do They Provide?
Most people initially seek out a financial advisor because they need advice in regard to their investments. But most advisors offer a variety of other services beyond just recommended a portfolio for your investments.
Some other services they provide could be anything like:
- Financial planning
- Insurance planning
- Estate planning
Having a financial advisor that offers a variety of services is useful for many reasons. Firstly it can make your life easier. Having ‘a guy’ or ‘a girl’ you can go to for a variety of questions makes it simpler for you, and can help build a strong relationship with your advisor.
Secondly, having a good understanding of interconnected areas can help ensure you’re getting the best advice. You don’t want to be recommended something to later find out if you knew the big picture, you would have made a different decision. I believe the more you know, the better off you’ll be.
Having a financial advisor is more of a relationship rather than just a transactional occurrence. If your advisor offers other services, make sure they align with your plans, and what you believe you’ll need help with in the future.
What Sets Them Apart From Other Financial Advisors?
When you’re paying for something, it’s all about value. If two things are comparable, it usually comes down to which is better for you, which will provide you the most value or benefit.
The same is true for financial advisors. Asking what sets an advisor apart is a legitimate question, and it’s something you can use to gauge the value they could provide you.
It could be them having or pursuing designations, acting in a fiduciary way with their clients, working outside of typical banking hours to accommodate clients, having the flexibility to work with all account sizes, having newer technology that they use, or anything else. Every advisor should know what they do that sets them apart, so make sure their reasons are ones that align with you. Make sure you are getting the most possible value out of your advisor.
About the Author
Winnipeg based Financial Advisor focusing on investments, financial planning, and mortgages. I prioritize education, because I believe the more we know, the more we all benefit. It allows me to help people make the most of their financial future.
Disclaimer: The information in this article is not intended to encourage any lifestyle changes without careful consideration and consultation with a qualified professional. This article is for reference purposes only, is generic in nature, is not intended as individual advice and is not financial or legal advice.