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How To Interview A Financial Advisor

The bar for someone calling themselves a financial advisor is too low.

Clients want unbiased advice. Yet, most advisors are incentivized to recommend products that pay the highest commission. I have seen far too many people taken advantage of by “advisors” selling financial products and strategies that clients didn’t understand and were completely inappropriate for their situation.

My passion for this profession comes the ability it gives me to empower clients to make their own informed financial decisions. This is not done through what I call the 3 P’s (Pontificating, Prognosticating, Product Sales), but instead by what Oxford calls the 3 C’s (Clarity, Confidence, Catalyst).

By starting with a well-thought-out, evidence-based financial planning process, we establish a working relationship where clients clearly understand what fees they are paying, and what advice they are getting for that fee. This straightforward approach, coupled with our battle-tested Power of 5 Investing® system, allows me to coach clients through good markets and bad to make sure we have actionable strategies to reach their most cherished goals.

With that all in mind, I wanted to focus my blog for this month on a few simple questions you can ask an advisor before you hire them. If you already have an advisor, you can ask them these questions as well, and the answers might surprise you. If you don’t like what you hear, let’s get together and talk about the value a true fee-only, fiduciary, and independent advisor relationship can bring to you and your family.

What is Your Firm’s Philosophy?

Although there is no true “right answer” here, you need an advisory practice that, at its core, wants to understand your goals, aspirations, risks, and fears before making any recommendations. This is often referred to as a “financial planning-centric” practice, as all decisions stem from a holistic understanding of your financial life.

You want to steer clear of advisors that go straight into a discussion about their stellar stock market performance or their ability to “pick stocks and bonds.”  The reality is that market timing is a fool’s errand, and anyone spending time talking about their ability to do so is much more interested in themselves than they are in you.

How Do You Get Compensated?

If you want to find out how people are most likely going to behave, you need to understand their incentives.

Some financial planners work in a fee-only capacity and embrace the fiduciary standard, while others might call themselves a financial planner but are actually salespeople in disguise.

For instance, if an advisor works at an insurance company and he/she gets paid high commissions for selling whole life insurance, there’s a good chance whole life insurance will come up as a suggestion — even if it’s not necessarily the best product for you. Again, it’s all about incentives and fiduciary duty.

Knowing how your advisor is paid can help you identify and ensure that your interests are aligned with theirs. Oxford’s sole sources of compensation are the fees paid to us by clients. Fees are transparent and clear, and displayed on our website at all times.  No commissions.

Are You Associated with Any Broker-Dealer?

The answer you are looking for here is “no.”

This goes back to our point on incentives. We’ve found that the incentives of independent advisors, who have no association with large broker houses or parent companies, are more aligned with the interests of their clients.

Here at Oxford, we work only for you.  We are 100% employee owned, and registered with the SEC.  No brokerage firm, no middleman.

What is Your Approach to Investment Planning?

Again, there is no perfect answer here, but there are some very good responses and some very bad responses. The most important thing you want your advisor to have is a well-thought-out, evidence-based process. If they sound like they are “winging it” or start discussing their stellar market performance when you ask this question, you are not on a good path.

Our essential principles of portfolio management are fourfold:

  1. The performance of a portfolio relative to a benchmark is largely irrelevant to long-term financial success
  2. The only benchmark we should care about is the one that indicates whether you are on track to accomplish your financial goals
  3. “Risk” should be measured as the probability that you won’t achieve your goals
  4. Investing should have the exclusive objective of minimizing that risk.

The general principles above are all delivered via a proprietary investing system called Power of 5 Investing®. This system has served our clients well for 25+ years and will continue to guide how we serve clients well into the future.

These are just some initial questions you should consider discussing when interviewing an advisor. It is important to build a strong and open relationship with the advisor you select. Doing so will give you the best chance of achieving your financial goals.

If you or a friend would like to learn more about how Oxford works as a fiduciary for our clients, give us a call today or send us an email! 

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