How Do I Know if My Financial Advisor Is Doing a Good Job?
Updated: Feb 24
Your financial advisor is meant to represent you and your interests. Unfortunately, people get into the habit of making their judgments based on results. You need to understand that this is not a one-dimensional industry, and you cannot base your evaluation completely on the numbers.
Admittedly, you probably opted to get a financial advisor in your life to start seeing greater wealth creation and asset diversity. So, if that's not happening, you may just have a good reason to question the job that your service provider is doing.
Even with these variables in mind, some people find themselves asking, “how do I know if my financial advisor is doing a good job?” The idea of the information below is to give you a few pointers and areas of interest that you can use in your evaluation process.
How to know if my financial advisor is doing a good job
A retirement financial advisor in Pittsburgh PA is expected to be the expert in the equation. Therefore, a client should walk into discussions expecting suggestions to be made that are meant to achieve an end goal. The only problem is many advisors don't even bother to understand what this goal may be before they start recommending the next big solution or product that you “need” to invest in.
If you are selfish nowhere else in your life, this is one area in which you are allowed to be. The whole purpose of your initial engagement with an advisor is for a roadmap to be created based on your unique needs.
If you are dealing with someone who does not bother to ask the relevant questions to fully understand what you have, what you need, and what you are trying to achieve, it means you are not front and center. Therefore, it may be in your best interest to start working with a new service provider
Understand how your advisor gets paid to give you a clearer picture of the incentive that's presented to improve your financial position. Many advisors have a commission-based compensation style, which means that their revenue comes from the number of solutions that they can successfully sell customers.
Therefore, you find that this set of advisors tend to be more aggressive with the recommendations, as they're trying to close sales to meet a quota.
Your best bet is to opt for a fee-only financial advisor. You tend to get better outcomes when you are the source of compensation, which means ensuring that your assets are adequately managed has a mutual benefit.
It is also beneficial to discover at what net worth you should be hiring a financial advisor.
To this end, you may find that clients and their advisors have one of two relationship types. There are transactional relationships that are based purely on the figures. Once that initial sale is closed, then the communication proceeds to become progressively weaker.
On the flip side, you have relational financial advisors who put a strong focus on cultivating a solid relationship with their clients. On this side of the fence, you tend to find the more proactive approach being taken, which sees adequate insights being provided that can prove profitable for you in the future.
Improving Your Understanding and Appreciation
Some clients prefer to take a hands-off approach with their investment decisions. This section does not speak to them. Instead, it highlights those who may want to improve their financial posture while expanding their knowledge of various elements in the industry.
Once you have worked with a financial advisor enough, your relationship with money and your understanding should continuously improve. Even if you started as someone who was just throwing money as a solution to help you earn, that should not continue to be the case after enough time has passed and after getting financial advice.
Instead, based on the knowledge and experience that your financial advisor has, deep discussions should take place leading to better positioning from both a mental and financial perspective.
Understand What’s a Part of the Deal
The final point of evaluation speaks to understanding what is supposed to be a part of the engagement. This allows you to do a checklist of areas for review. Additionally, any good advisor should do at least annual reviews with their clients to establish where they stand, what they are entitled to, and what to expect going forward.
Understanding the destination and the path to it makes evaluating the journey much more worthwhile and insightful.