Wealth Management Vice President Matt Prince offers advice in Authority Magazine about how to select the right financial planner or advisor. Prince talks about how he was inspired to work in wealth management and how clients can protect themselves.
Five things to consider when selecting an advisor
1. Determine if they are a fiduciary versus a financial advisor. A fiduciary is required to put the client’s interest above their own, so decisions are based on client goals and not the product of the month. A fiduciary will be transparent with costs instead of selecting an investment based on which firm took the advisor out to lunch.
2. Ask how they get paid. There are a number of ways advisors can be compensated, from a flat annual fee to a percentage of assets under management. Others may get a fee or percentage based on your fund. Mutual funds can have like 13 share different share classes, even though the underlying investments are the same. For example, with Class A shares, every time you put money into that fund, roughly 5 percent goes to the advisor, something you can see on your statement. Then there are also Class C share charges for those mutual funds in which the fees come out of performance, and the client doesn’t see the transactions. In other words, it may look like your fund is up 10 percent, but if the sales charge or investment expense is 1.75 percent, you were actually up 11.75 percent, and a large part of the difference went to your advisor.
3. Ask about experience. How long have they been in the industry and what certifications or continuing education designations do they have? What about their investment philosophy and process? They’ll either have one or they won’t. You can also ask for a reference. That isn’t uncommon.
4. Clarify the cost to end the relationship. If you enter into a relationship with a fiduciary or advisor, ask what would the cost or impact be to leave or switch to someone else.
5. Don’t just rely on your gut — it can lead you astray. I’ve seen clients who met someone socially or through friends who seemed trustworthy, but at the end of the day, the advisor wasn’t acting in the client’s best interest. In one case, a person lost 80 percent of their funds because they were invested in things that were failing. We want clients of The Trust Company of Tennessee to trust us, and my goal is to be a trusted and respected advisor, but we also back it up with our experience and expertise. Asking these questions of a potential advisor and evaluating if that person is a good fit is likely wiser than trusting the way you feel about an individual.