The Role of Emotional Factors in Your Decision to Hire An Advisor

Hiring a financial advisor can provide several benefits that are essential for managing your financial well-being. A financial advisor possesses a deep understanding of complex financial concepts and can help you navigate the intricacies of investing, retirement planning, debt management, estate planning, succession planning, tax optimization, and more. They can create a comprehensive financial plan tailored to your specific needs and goals. In addition to their financial expertise, a financial advisor can also address your emotional needs. They can make you feel more confident about your financial future and make informed decisions to achieve your long-term objectives. A financial advisor can provide emotional support by offering encouragement, understanding, and empathy.

Hiring a financial advisor can be reassuring and offer you peace of mind. In this article, we will go over the emotional factors involved in hiring a financial advisor. We will also cover the role of emotions in financial decision-making and how to read your feelings correctly to ensure you select the right financial advisor.

There are typically three aspects that make up a successful client-advisor relationship, as explained below:

1. Portfolio value: The first component that affects you is the portfolio value. The financial advisor is responsible for creating a well-diversified portfolio that generates inflation and risk-adjusted returns for the client. The professional must consider your risk tolerance and construct a portfolio that aligns with your risk appetite. The financial advisor should also consider other strategies for optimizing after-tax returns, portfolio rebalancing, lowering fees and maximizing returns, etc. The professional’s job is to ensure that your portfolio stands the test of time and can bring you to your desired goals.

2. Financial value: The primary purpose of creating an investment portfolio is to achieve specific financial goals. Therefore, the financial advisor must possess the ability to align your portfolio with your unique financial objectives, such as retirement planning, wealth appreciation, tax reduction, debt management, education funding, legacy planning, etc. A skilled financial advisor must tailor your portfolio to meet your financial aspirations within the desired timeframe. This involves assessing all your short, medium, and long-term financial goals and providing a roadmap for achieving them.

3. Emotional value: Beyond the two quantitative components mentioned above, there is a third dimension, too. This is known as emotional value. This includes evaluating emotional intelligence while selecting a financial advisor, i.e., the emotional well-being and peace of mind that a financial advisor brings to the table. Emotional value is driven by your emotional relationship with the financial advisor. It highlights your trust, confidence, and faith in the professional. It is important for the client and the financial advisor to focus on building a rapport built on trust and reassurance. This can bring more stability and peace of mind during times of market volatility, financial emergencies, etc.

While portfolio, financial, and emotional value may seem different, they are interconnected factors that collectively contribute to a successful client-advisor relationship.

How do emotions influence advisor selection?

When hiring a financial advisor, most people look at the professional’s expertise, qualifications, licenses, experience, and reviews. While all of these are critical aspects that you should not ignore, it is important to go beyond and assess their emotional aptitude as well.

Here are a few ways in which emotions can influence the selection process:

1. How confident you are in the advisor’s ability

It is important to be confident in your choice. If you are certain about the financial advisor you choose, you are more likely to follow their recommendations and take their advice seriously. Feeling emotions like anxiety, stress, or uncertainty about financial matters is normal. The market is cyclic in nature. It fluctuates often. There are newer financial instruments in the market every now and then. Some of these are volatile, and others are less risky. As long as you are sure of the financial advisor’s guidance and assessment, you will be able to make informed decisions without a second thought. If you find yourself constantly doubting the professional at every step, you will not be able to benefit from the association.

2. How comfortable you feel with the advisor

Feeling comfortable with the financial advisor you hire is essential. If you are at ease when discussing your financial matters, you will be confident that your financial advisor has your best interests at heart. You will also be able to discuss different aspects of financial planning without hesitation. Financial planning may involve sharing personal and professional details of your life. For instance, you may discuss estate planning. This can include setting up a trust for your children. You may discuss the details of your will and the percentage share of your wealth distributed among your heirs. The financial advisor may be involved during personal events like a divorce when your assets are transferred to your ex-spouse. You may like to discuss an increment or salary cut with your financial advisor to understand how you can accommodate changes in your income in your financial plan.

The ability to trust your advisor and feel comfortable sharing personal and financial information is essential for a fruitful client-advisor relationship.

3. How effectively you communicate with the advisor

Effective communication is the foundation of a good professional client-advisor association. It is important to be able to communicate with your financial advisor without judgment, inhibition, or fear. A financial advisor should listen to you attentively. They should understand your unique financial goals and empathize with your concerns. There should be no sense of discomfort, reluctance, or awkwardness. The ability of a financial advisor to connect with you emotionally can make a significant difference in your overall experience and satisfaction. Therefore, make sure you hire someone you can talk to freely and without judgment.

4. How compatible your values are with the advisor

Another essential emotional consideration when hiring an advisor is to check your compatibility with the profession regarding values. If your values align with those of the financial advisor, you will both be able to understand and respect each other’s points of view. This will also ensure that the guidance the professional provides is in line with your goals and principles. They will be able to address your concerns and provide reassurance. Moreover, the types of investments they recommend will align with your principles. For instance, you may not want to invest in some companies or industries, such as fuel, mining, tobacco, etc. You may also want to prioritize some investments, such as Environmental, Social, and Corporate Governance (ESG). A financial advisor who understands your personal beliefs and priorities will be better equipped to create an investment plan that is tailored to your preferences.

5 emotionally driven factors to consider when hiring a financial advisor

1. Listen to your gut feeling

As with several other areas of your professional and personal life, your gut feeling can also be essential in financial decisions. Your instincts tell you a lot about a person. Make sure you pay attention to them. When you meet a financial advisor for the first time, observe them. Make a note of their communication skills and interest in the conversation. Check if they are friendly and approachable. Try to notice non-verbal cues and subtle signals that trigger positive or negative emotions. If you feel uncomfortable in their presence or their advice, do not ignore the feeling.

Your intuition can provide valuable insights beyond what can be assessed solely based on facts and figures. So, if you sense any red flags or inconsistencies in their communication that evoke feelings of uncertainty or doubt, do not disregard them. Having said that, it is also important not to judge a book by its cover. If you do not like their body language or way of talking in the first meeting, try to schedule another meeting. See if you feel differently. If not, you can go ahead and end your association and look for a better financial advisor.

2. Get recommendations from your friends and family members

Seeking recommendations from trusted friends or family members can offer assurance and confidence. Ask people who have had positive experiences with a financial advisor for suggestions. You can inquire about the professional’s background, personality, communication style, expertise, and caliber. This can offer an initial level of trust and confidence in the advisor’s abilities. Trusted sources help you screen professionals. This way, you can shortlist financial advisors you like and then interview them to confirm if they are a good match for you.

However, when asking for recommendations, it is important to consider only those people who share similar financial goals, values, and circumstances as you to ensure a good fit. For instance, if you are nearing retirement, you can ask people in the same age group with similar financial goals or someone who has retired recently. This will ensure their advice and experiences are relevant and applicable to your situation. Doing so will also increase the likelihood of finding a financial advisor who is a good fit for your particular needs and save time.

3. Learn from your past experiences

Past experiences, both positive and negative, can influence emotional decision-making. If you had a negative experience with a financial advisor, it will likely affect your decision-making the next time you hire a professional. This should not be a roadblock. Instead, it can help you screen professionals. You can lean on your past experience and make a list of things you want and do not want in an advisor. For instance, if you worked with someone who did not listen to your concerns and was bad at communication, you may prioritize finding an advisor who demonstrates empathy and effective communication skills. On the other hand, if you have had positive experiences, you can seek out similar qualities in a new financial advisor.

4. Look out for advisors that may assist with behavioral coaching

Behavioral coaching refers to the financial advisor’s ability to guide you toward rational decision-making. It involves helping clients adopt a disciplined approach without being affected by emotional triggers like stress, panic, and peer pressure. If you struggle with keeping calm and have made hasty decisions in the past that have led to financial problems, it can help to seek out a professional who specializes in behavioral coaching. This can be particularly helpful during times of market volatility or emotional stress due to investment loss, income loss, or debt.

5. Look for advisors that are transparent

Transparency is another crucial aspect when it comes to the emotional dimension of a financial advisor. The financial advisor should be transparent about setting realistic expectations. They should not make unrealistic promises or guarantee returns. They should be honest about potential risks and market volatility and areas where they may not have specialized knowledge. For instance, not all financial advisors are fiduciaries. Being honest about this can help you make an informed decision about hiring them.

To conclude

It is crucial to prioritize emotional intelligence in selecting a financial advisor. A financial advisor should instill confidence and provide peace of mind. They should be able to address emotions such as anxiety, stress, or uncertainty about financial matters. It is common to have financial concerns and doubts. A good financial advisor may be able to provide reassurance and alleviate these emotions to help you feel more secure about your financial future.

WiserAdvisor’s free advisor match service can help you find a financial advisor who can address your financial and emotional concerns about your present and future financial needs. Answer a few questions based on your financial needs, and the match tool will help connect you to 1-3 financial advisors who are best suited to meet your financial requirements.