One of the most common questions I get is: “I’ve got a windfall/life change/more income. How do I pick a financial advisor to help me figure this out?”
My first impulse of course is to ask if they’re aware that I myself work at a financial planning firm. Joking aside, I never actually ask. I assume they must know, and either think they need to find someone in their local area or are just desperate for unbiased advice. I try to be objective but it’s true I’m biased — I tend to think Telarray is pretty great. So if someone asks and doesn’t express interest in me specifically, I don’t give them a hard sell — I give them my honest opinion.
You want to find a true financial planner. Almost every firm says they’re a financial planning firm but very few really have the tools, expertise, and desire to make a real, useful plan for you. One way to determine if they’re planning or not is how they allocate you to an investment portfolio. Is it just based on age? Is it based on just your feelings about risk tolerance? Is it based on anything at all? In my opinion, true financial planners consider your need, ability, and desire to take risk based on all your expected lifetime expenses. They model scenarios using hard math to actually recommend the portfolio you need rather than accommodating you by agreeing to the portfolio you think you want.
A good investment approach is necessary but not sufficient. I always say investments aren’t the head coach or quarterback — they’re the strength and conditioning coach. I would look for a valid concept with stability over time in an investment approach. Some firms hire a bunch of active managers and periodically kick out the underperforming ones, which seems sensible but is a recipe for overall long-term underperformance (and tax inefficiency!). The more an advisor focuses on their ability to pick winners or respond to short-term market trends, the more skeptical I would be. It’s a marathon, not a sprint.
Figure out how they get paid. If the advisor is paid in any way other than the typical definition of “fee only” then there may be an element of objectivity that is missing. Are they required to be a fiduciary 100 percent of the time? I strongly recommend you research what these two terms mean if you’re not sure. One of the things I value about our firm is that we could put our investors in any investment we deem appropriate with no changes to our income as a firm. We can recommend things like insurance, but since we don’t sell it ourselves, you would know that we only recommend it if you really need it. If you work with someone that is captive to a larger organization that creates their own products, you’ll probably end up with some of those products, and I would always wonder if they just happened to be in your best interest or not.
There are countless other criteria I would consider, but this is just a start. As I mentioned above, everyone is desperate for high-quality, unbiased advice. Nobody can tell the future with certainty, but someone who is highly qualified at real financial planning, has no external agenda, and is incentivized to have your best interests in mind at all times is likely to best lead you down the path to your secure financial future.
Gene Gard is Chief Investment Officer at Telarray, a Memphis-based wealth management firm that helps families navigate investment, tax, estate, and retirement decisions. Ask him your questions or schedule an objective, no-pressure portfolio review at letstalk@telarrayadvisors.com. Sign up for the next free online seminar on the Events tab at telarrayadvisors.com.
