Picking a Financial Professional in the New Year

January 10, 2023

Many financially successful people are comparison shoppers. If you’re one, you may pore over ratings in consumer magazines, read websites for reviews and compare scores of products before you buy even everyday products like coffee or toilet bowl cleaner. Yet chances are good you may not use that same care when choosing a financial professional to manage your life savings.

A survey from DFA and consulting firm Advisor Impact asked 1,229 investors how they decided to work with their current financial professionals. Here is what those investors said:

• More than half of the respondents (61%) chose the only financial professional he or she interviewed
• A mere 22% interviewed more than one financial professional
• The remaining 17% of investors selected “other” methods, which possibly included throwing darts at a board

Your Reasons Matter

The survey went on to ask which of 11 possible reasons contributed to the decision to choose respondents’ current financial professional. More than half of those surveyed (55%) cited the professional’s experience in working with similar clients, making it the top consideration.

This affirms the recommendation of most marketing consultants that financial professionals carve out a niche and become the perceived specialist in a specific area. Unfortunately, lack of specialized knowledge in such an area doesn’t disqualify a financial professional from using the marketing spin to great advantage.

Notice, for example, how many financial professionals tout a specialty, such as women or couples. For the record, I’ve never seen one advertise, as a specialty, advising only men.

Investment Philosophy & Returns Matter

The next four factors in the survey all tied for next most-important considerations: investment philosophy and returns; a broad selection of investment options; a sense of shared values; and a recognized brand name.

Certainly, investors need to pay attention to a financial professional’s investment philosophy and returns. There is a big difference between financial professionals who are deeply committed to a passive, buy-and-hold strategy and those who’ve developed intricate models of timing various markets. You must remember that a given financial professional can overstate or manipulate both investment philosophy and returns.

Just as important, does the financial professional represent a broad selection of investment options? In many cases, the selection stems from just one mutual fund, insurance or annuity company or retirement plan advisor.

Values Matter

Discovering whether you and your prospective financial professional share similar values requires that you ask lots of questions, listen closely to the answers and get a sense of them as a professional and a person.

Realize too that some firms spend buckets of money establishing brands as competent, caring and trustworthy shepherds of your money. That expense seems to pay off.

Financial services consumers often don’t notice the millions of dollars a firm pays in fines after regulators, like the Securities and Exchange Commission and the Financial Industry Regulatory Authority, notice behavior that’s opposite its advertised values.

Fees & Education Matter

Other factors that surveyed consumers saw as relatively unimportant are surprising:

• For example, financial professional compensation methods ranked only seventh in importance as just 30% of respondents cared whether these professionals were compensated with commissions, with a combination of fees and commissions (fee-based) or only with fees (fee-only).
• Only 12% of respondents considered a financial professional’s education important, making it 10th among concerns. Most consumers don’t seem to care if a financial professional has a master’s in financial planning or an undergraduate degree in history.

It may do you well to apply your comparison-shopping skills when choosing financial professionals. Learn to look past the marketing and assess what could be more important: the financial professional’s training and integrity.

Important Disclosures

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

This article was prepared by AdviceIQ.

LPL Tracking #1-05210192