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Picking an advisor, a behavioral perspective Thumbnail

Picking an advisor, a behavioral perspective

According to a recent study by the CFA institute of high net worth individuals, the number one reason an investor does not hire an investment professional is that they do not know how to vet one. Credentials, licensing and experience are important however plenty of advisors with those characteristics have not acted in their client’s best interest. There are many examples online of questions to ask abut investment philosophy, fees, conflicts of interest… but how can we determine an advisor’s character?

A few years ago, Ameriprise financial did a study of some of their advisors and found that clients experienced better results when their advisors had two characteristics. The first one is integrity and the second is customer service orientation. (link to the study is below).

It may not surprise anyone that integrity is an important trait for anyone in a professional service (Financial Advisor, Lawyer, Doctor, etc). However, it isn’t the easiest thing to identify early on in a relationship, Bernie Madoff and other schemes come to mind. Below are questions that are grounded in behavioral studies to help you get a feel for the qualities the advisor may have. 

  1. What are your most important values?
  2. What is the one thing your clients say most often about you?
  3. Can you tell me about a time when a client wanted to make a financial decision that you didn't think was in the client's best interest? How did you handle that?
  4. Can you tell me about a situation in which you made a mistake dealing with a client? How did you handle that?
  5. Tell me about how you handle your working relationship with your most difficult client. What do you do that's different from how you act in your relationship with your favorite client?

  6. What services do you personally provide that I might not expect from another advisor?
  7. How do you make sure that your clients always know where they stand relative to their financial goals and life goals?
  8. Can you tell me about a situation in which you worked with another professional inside or outside your firm to help meet a client's needs? Who did you work with and what was your relationship with him or her like?
  9. How have you personally responded to market volatility, and how have you communicated your thoughts and feelings about market volatility to clients?
  10. What kind of return can I expect if I asked you to manage my investments?

In the end, the best outcomes will be achieved when you find an advisor you know, like and trust. You will have a better time working with the advisor and if he/she is trusted they can work fully in your best interest. Hopefully these questions lead you to finding that advisor!

(study link: https://static.kaplanlearn.com/assets/79/a5/MorallyandEmotionallyCompetentFinancialAdvisors.pdf)

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