When it comes to choosing a new financial advisor or evaluating your current advisor, there are some very basic elements that you need to consider. To get you in the right frame of mind, consider these myths and new realities.
Myth number one is about competence and success. Believe it or not, the most successful advisors are not always the most competent. Sometimes success for an advisor comes from their smooth talking ability and strong relationship building or sales skills. As a young planner full of energy and education, I was frequently surprised to see issues that were never addressed by the advisor and how the nature of the relationship seemed to always be about selling something or adding investments to their accounts.
Myth number two is that larger firms must be better than smaller firms. Nothing could be further from the truth. The reputation of the large Wall Street firms over the past few years looks tarnished to some, but a common issue is brokers who call themselves advisors offering little more than investment guidance. In fact, you may be surprised to learn that some of the largest firms in the USA don’t even let their broker/advisors give advice on a long list of matters that may be quite material to your overall wealth and financial well-being.
The last and perhaps most significant myth focuses on exactly what type of advice you are receiving. If you are working with someone who narrowly provides insurance or investment services only, understand that you may not be getting all the advice you need. Unfortunately, most individuals think that they are “all set” when it comes to the rest of their financial life only to find out what they didn’t know when something hits the fan.
Front and center in the world of financial advisors today is the issue of whether an advisor should act as a fiduciary. A fiduciary advisor would be one who agrees only to act in the best interests of the client. That would include full disclosure on any and all compensation and always putting your clients’ best interests first.
Currently, the rules require professionals registered as an investment advisor or those holding the CFP® designation to act as a fiduciary. Brokers and insurance agents, on the other hand are held to a much lesser standard, known as the suitability standard. A fiduciary standard for advisors is long overdue.
When working with an advisor, it is always best to know exactly what you are getting versus what you could be getting. The real awakening, however, is when you understand that the sum of the parts and holistic planning frequently adds context and clarity toward your end game of achieving your life dreams and financial goals.
John P. Napolitano CFP®, CPA, PFS, MST is Founder and Chairman of Napier Financial in Braintree, MA. Visit napierfinancial.com for more information. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Investment and financial planning advice offered through US Financial Advisors, a Registered Investment Advisor.
