Last Modified on October 8, 2020

In the current times, it is not difficult to find a financial advisor. But with the increased availability of such professionals, their competency becomes a matter of concern. You do not want to be engaging with someone who is not qualified or well-equipped to handle your money in the best possible manner. More so, with the continuously changing market conditions, it is important to secure your money in the right hands. But finding a financial expert and measuring their performance can be a bit tricky.

Here are some signs that can help you to assess your financial advisor’s work:

1. Understands investing purpose and goals

You are hiring a financial advisor to be in charge of your money matters and investments. Hence, the professional must take due time to determine your investment purpose, risk appetite, time horizon, savings rate, and financial goals and then structure your portfolio to best match your needs. If your financial advisor sits with you to know your financial priorities, identifies your goals, and ensures that your investments match your preferences, they are doing a fair job. On practical grounds, your financial advisor should be able to consult and work on your full-range of investments, including your retirement savings accounts like the 401(k) account, etc.

2. Takes investment decisions driven by goals

Simply understanding your financial priorities is not the aim or a mark of a competent financial advisor. He should be able to develop a plan that aims to achieve the set goals. For example, if you are 60 years old, and wish to hire a financial planner to get a secure income during retirement, a good advisor will structure your portfolio with safer investments such as bonds, treasuries, annuities, etc. This will ensure that your money is safe, while at the same time, you will receive guaranteed returns when you are no longer employed. Hence, while analyzing your financial advisor’s work, be sure to check if their decisions are driven by your financial goals.

3. Aims to align interests

When assessing how effective a financial advisor’s work has been, you should take a holistic view. See if they work hard to align their interests with yours. It is essential to hire someone who places your needs as primary and follows ethical business practices. An efficient financial consultant will always disclose all potential areas of conflict and would work to minimize the possible causes of disagreement. Ideally, if your financial expert is a fiduciary, you could be almost certain they are working for your benefit. Fiduciary financial counselors are obligated by law to always work in the favor of their clients and treat the client’s needs above their own. If your financial expert does not conform to a fiduciary duty, then you could be dealing with a person who follows a suitability standard. In such a case, the advice you get will be a suitable counsel but not necessarily the ideal one, per your requirement. So, when assessing your financial advisor, understand if they are a fiduciary. Also check if they took sincere efforts to align interests and ensure you stand to gain, wherever possible.

4. Has improved your financial health

Ideally, a skilled advisor will help you build a stronger, healthier relationship with your money. So, when assessing the work of your financial expert, be sure to take a tab of your monetary health. Conduct an exhaustive financial wellness check. You could determine your net worth and understand which way it is trending. Other ways to understand your financial position are to calculate your debt-to-income ratio, assess the worth of your assets, etc. You could check if your investment portfolio and strategy are in alignment with your goals. If most parameters are positive, you can be sure that your financial counselor is doing their best to provide you with financial security in the long-run.

5. Is relationship-focused

A capable financial advisor would always follow a relationship-focused approach rather than a product-oriented one. So, if your guide can offer you sincere advice when needed, is easily approachable, solves your queries earnestly, and works efficiently to improve your financial health, then they are performing well. It is advisable to not engage with an advisor who is more focused to earn a commission by selling you investment products that do not fit your objectives.

6. Aims to communicate effectively

Money matters are very critical and you do not want to hand over the ripcord of your finances to someone who you cannot freely communicate with. If after engaging with a financial advisor, you feel that you have not been able to address your concerns openly or feel restricted while seeking clarifications, then you could be dealing with the wrong person. So, when evaluating how your relationship with your consultant has been, be sure to ask yourself how well you both have communicated in the past. Also, determine if your financial expert adopts a more problem-solving approach or is not bothered with your financial concerns. Overall, a competent advisor would be able to invoke trust and confidence.

7. Works well under stress

Markets will fluctuate and investments will dynamically vary in value. Hence, when you hire a financial expert, it is expected that they would understand the basic nature of the market and be able to work well, even under stress. So, if your advisor is attentive, has a clear strategy, and takes a proactive approach rather than panic, your money is in the right hands.

8. Adopts transparent pricing

When testing your financial advisor, it is important to know their pay structure. If you know how they are paid, you can easily assess their performance. Some advisors might tell you they do not take a fee, but that does not imply they work for free. It could be possible that they are earning a hefty commission by selling you specific stocks. However, other financial advisors would only charge a percentage of your assets. This makes them more viable since your success is relative to theirs. But even in such an arrangement, there could be several hidden fees and add-on costs involved. Hence, the winning criterion is transparency. So, when analyzing your financial advisor, be sure to assess how transparent the pricing is. If you have been receiving bills with hidden costs, declared last minute, you should be looking out to hire a new financial advisor.

9. Is responsive

The responsiveness of financial advisors reflects very highly on their work ethics and ability. If your financial advisor has always been responsive and fast on their feet, you could be sure to not miss out on good market opportunities. Moreover, if they have been tactical in their approach to minimize losses, you could give them some bonus marks and be sure of your financial safety. A competent financial advisor will review your risk tolerance in a timely manner. They will also modify your financial plan to accommodate your life changes.

To sum it up

Engaging with a competent financial mentor is critical to your financial wellness. Hence, evaluate the performance of your financial advisor with prudence to be sure that your hard-earned money is in safe custody. With the right professional financial advisor, you could be more certain of a secure future.