Several considerations go into selecting a financial advisory firm, especially if you are in your prime working years and have plenty of time left before you retire.
For one, think about whether the advisors are fiduciaries. More and more investors today want to work with a professional who provides advice (versus selling products) and is legally obligated to consider a client’s best interest.
Also, do the advisors have a good disciplinary record? A violation doesn’t mean an advisor is a crook. Mistakes happen. But if they have a history of not keeping their own house in order, do you really want them to manage your family’s money? Entering their name into FINRA’s online Broker Check tool is an easy way to find out.
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Another factor is personal chemistry. Remember, your professional relationship with an advisor is much like that with a doctor — it could last decades. You don’t have to be best friends, but it would be better if you liked them.
These are all important concerns. Yet one that doesn’t come up as often: How equipped are the firm and its advisors to grow and evolve? Here are five questions to ask your current or would-be advisor to help determine whether they are running in place or capable of keeping up with your ever-changing needs.
- How long has their firm’s leadership been in place, and how many of them were promoted from within? It would be silly and impractical for a company — financial services or otherwise — to have a policy against bringing in outside talent. Indeed, experienced leaders who can help businesses become more efficient and offer better services are valuable, no matter where they come from. Yet, if too many leaders are new to the firm or have not been groomed from within, it could be a sign that they are short-term hired guns whose primary responsibility is to supercharge growth at all costs. That approach may produce slimmer margins, but it’s unlikely to yield investments back into the firm that improves your experience.
- How long has the staff been in place? A startup can be a great place to work. Everyone is new and has a sense of purpose, which often infuses the workplace with a positive, almost virtuous, energy. The story is sometimes different when established businesses have few tenured employees and everyone is new. It could indicate that the culture is poor. That produces a very different energy throughout the office — one that could ultimately filter down to customers like you.
- When was the last time they upgraded their technology, and how integrated is it? Imagine sitting with your advisor, looking at a screen displaying your investments. You have a question about one of your holdings, but it’s not there. To find it, they have to log into a different system. While this may not seem like a big deal, it’s a huge red flag when an advisor must toggle between two platforms to see all of a client’s holdings. It means they either have outdated or substandard technology — which, in turn, suggests they care more about improving their own margins than investing in up-to-date, integrated systems.
- What safeguards do they have to protect customer data and thwart cyberattacks? Most cyber and data incidents result from human error (i.e., someone internally clicking a link they shouldn’t). With that in mind, ask them how often they undergo cybersecurity awareness training. Also, ask whether they monitor potential vulnerabilities within their systems and devices. Remember, this isn’t just about sensitive information getting compromised — as bad as that is. It’s also about being able to always trade within your portfolio. If a cyberattack takes down your firm for a prolonged period, you may not be able to do that.
- How many of their advisors are near or under 40? The financial services industry is facing a demographic crunch, with the average advisor about 55 years old. To make matters worse, many of these advisors do not have a succession plan. There’s nothing wrong with working with an older advisor. At the same time, if they were to retire without having anyone internally set to take their place, it would create a long line of issues for you. If an advisor isn’t planning for their future, do you want them planning yours?
Your needs will change as you evolve and different things happen in your life, whether it’s getting married, having a baby or switching careers. Therefore, you need an advisor who will evolve right along with you.
Good firms and advisors can keep up with the latest wealth management and financial planning trends. The best ones, though, stay ahead of them.
— By Detlef Schrempf, director of business development with Coldstream Wealth Management
Correction: This op-ed was written by Detlef Schrempf, director of business development with Coldstream Wealth Management. He was incorrectly identified in an earlier version.