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Retirement Weekly: New year, new adviser? How to know when it’s time to switch.

With a tumultuous 2022 behind us, the start of a new year can be an ideal time to review your long-term financial goals and take steps to set yourself up for long term success. 

Enlisting a financial adviser as a partner in the process is a key part of that success. However, this can be a big decision. Selecting a specialist in any field — doctor, lawyer, contractor — can seem daunting, particularly if you have limited background knowledge in the area.

Here is a checklist to help guide your search:

Rapport: The individual or team you select to work with will be an integral part of your financial life. Oftentimes, your adviser will come to know your parents, children and grandchildren, helping you achieve not only a comfortable retirement, but also other goals like education for children, philanthropic desires and a financial legacy. You will want to find someone with whom you have a good rapport—someone who is a good listener, who seeks to learn about you and seems to genuinely care about the relationship. But this is a threshold question—don’t pick someone just because you like them.  

Trust: It is critical to work with someone you can trust. While feelings of trust can be subjective and we have all met a good “salesman,” there are some objective factors to consider. First, look at the legal obligation to which the adviser is held. A registered investment adviser (“RIA”), unlike a broker, is held to a fiduciary standard of care. This means the adviser must act in the “best interests” of their clients and avoid any conflict of interest concerning products and services offered to them. A broker, in contrast, is only required to meet a “suitability” standard—meaning that the adviser has a reasonable basis for any recommendations. Note, however, that any good adviser, whether legally held to a fiduciary standard, should always act in your best interest. You don’t necessarily need to rule out an adviser just because he or she is held to the lesser standard, but it is a factor to consider.

Financial planning: Comprehensive financial planning should be the cornerstone of any advisory relationship. If the adviser focuses almost exclusively on investment management and does not offer meaningful planning, walk away. How can you tell if the planning is truly comprehensive? Ask to see examples of other financial plans. At a minimum, the plan should include a detailed balance sheet and year-over-year cash flow analysis backed up by a tax report and subject to stress testing to ensure that goals are met even in the worst-case market scenarios. It is critical that the adviser will consider and advise on outside assets—both liquid and illiquid and provide financial consulting on all aspects of your financial life. Ideally, the adviser or a member of his or her planning team will hold the Certified Financial Planner (CFP) designation—this is the industry gold standard for planning and demonstrates that the individual has undertaken a rigorous course of study and accreditation along with annual ongoing learning and ethics requirements. Not all letters after an adviser’s name are equal, so do your homework. 

Experience/knowledge: It goes without saying that you will want to work with someone who has a level of expertise that matches your needs. For individuals who have complex issues to address such as tax minimization strategies, trust and estate planning, real estate structures, liability and risk management, business ownership and succession planning, it will be important to work with someone who has a strong background in these areas. Look for someone with the relevant specialization who will coordinate with your other trusted advisers like your business or T&E attorney, CPA, insurance specialist or lender to ensure that the collective advice is optimized. While years of experience is a consideration, of equal importance is educational background (undergraduate degree, M.B.A., JD) and industry designations.   

Fees/transparency. The fees charged by an adviser are always a consideration but keep in mind that the lowest cost option may not be the best. Compare fees but don’t make this your sole consideration since the right adviser can ultimately save you time, money and headaches. Look for someone whose fees are based on assets under management rather than commissions. Asset based fees are typically charged on a sliding scale with fee reduction break points the more assets under management. In addition to the fee charged by your investment adviser, your costs may include custodial fees, asset management fees and internal expenses for mutual funds/ETFs. Make sure that the investments are fully liquid and that there are no potential exit fees if you leave the adviser. You should expect full transparency from the adviser and a detail of all related costs.  

Platform. Ask the adviser about the investment platform and other firm resources that would be available to you. Look for a firm that has an “open architecture” investment platform—meaning that the investment options are robust, and you are not limited to fee generating proprietary products. If the firm has access to experts like trust & estate attorneys, CPAs, and trust fiduciaries, this may also be a benefit. However, most good advisers have a network of specialists they can tap, and the most important consideration is that the adviser has the expertise to issue spot and help serve as your quarterback for all issues financial.  

Service. An adviser’s service model is incredibly important. Ask the adviser how often you can expect to have a formal review meeting—at least once a year is the minimum. Inquire about the communications you will receive in the interim and whether the adviser will be available throughout the year for questions. My general rule is that all emails/calls should be answered within 24 hours—even if follow up research is required. Also ask about other members of the adviser’s team. Will you have team members to reach out to in the adviser’s absence?

The right financial adviser can make all the difference when it comes to achieving your financial and personal goals. Don’t let the process overwhelm you—use the new year as a time to focus on what you are looking for, and you will spend the rest of the year grateful you put time and thought into this process.

Marti Awad is senior vice president and financial adviser at Wealth Enhancement Group.

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