2. Understand an advisor’s designations. An insurance broker is different than a financial services professional and different from a certified financial planner or investment advisory representative. If an advisor only has an insurance license, he or she should not provide investment planning or claim that they are selling the consumer an investment.
3. Check the advisor’s education. Much like physicians, there are many designations that financial advisors can obtain to enhance their expertise.
If an advisor and client can clearly understand the main objectives, they can find a product that suits the client’s needs. Every product is distinctive and should be scrutinized against a client’s goals.
When a financial professional offers a product, the most important questions are:
1. What are the benefits of owning this?
2. What are the risks of owning this—the downside?
3. Are there any guarantees? Are they limited in any way?
4. What am I getting in return for the fees I pay?
Some clients with singular needs such as basic investments may find robo-advisors suitable. Just as automakers are getting out ahead of disruptive change in the auto industry, the advisor who wishes to survive in the new financial marketplace must adapt to the client’s exacting needs.
For example, the broker who works by choosing stocks and bonds or determining the client’s risk tolerance will find it very hard to justify fees in this new world. As clients have more access to information, they are demanding more from their advisors. Rather than focusing on a stock/ bond split or risk tolerance, advisors must address the client’s many challenges over the course of a lifetime. These can include retirement, education, tax diversification, charitable planning, estate, long-term care, disability, life insurance and job changes. The list is endless. It is important for consumers to know how their financial advisor will address these goals comprehensively and work together to achieve them.