Building Trust with Your Advisor

In an article written for the second quarter issue of Worth Magazine, I’ve highlighted the importance of developing a meaningful relationship with your advisor to maximize the effectiveness of their service and achieve your desired outcome. Mostly, it’s a piece about the added value you should expect from your financial advisor beyond the management of your investment portfolio.

However, there’s a first step that one must achieve before the relationship can truly flourish and that is the building of trust between client and advisor. You must have faith in your advisor that they have your interests first and foremost. Without this level of confidence, you are more likely to withhold valuable details regarding your assets that will limit the advisor’s ability to produce optimal results. Effectively, you’ll leave money on the table and be less prepared to handle unexpected challenges that life always seems to have in store for us.

As a starting point for knowing whether this kind of relationship is possible with your advisor, there are some relatively simple questions you should get answered:

  • Is your advisor a Fiduciary acting on your behalf?
  • Does your advisor receive compensation for the sale of financial products, such as mutual funds or annuities?

Being a fiduciary simply means that the advisor is operating under a standard of service that is free of conflict and places the client’s best interests above his own. It’s also the cornerstone of building a trusting relationship between client and advisor, as you need to have full confidence that the advice you receive is best for you and your family, and not necessarily best for the compensation of the advisor. Furthermore, an advisor that provides guidance without consideration to compensation is afforded the freedom to focus on a single motivation – the success of the client.

Identifying your advisor as a fiduciary is as simple as understanding how you pay them. Many fiduciaries charge for their services based on a percentage of assets under their management, or through an hourly rate.

One scenario to be aware of is whether your advisor has “dual registration” as an investment advisor and a broker-dealer. If he is dually registered, be sure you understand which role he is representing when presenting you with an investment choice.

Another way to know that your advisor is, in fact, your fiduciary is if he is a representative of an RIA (Registered Investment Advisor) and, thus, bound to the fiduciary standard. Likewise, look for designations such as Certified Financial Planner (CFP®) or Accredited Investment Fiduciary (AIF®). Both of these designations require users to be fiduciaries.

Remember, the end goal is to establish a relationship with an advisor with whom you trust enough to share all facets that impact your wealth. Armed with that knowledge, and acting as your fiduciary, an advisor can then provide a holistic plan that offers the best potential outcome and is best equipped to handle any changes needed down the road.