Choosing A Financial Advisor: Your Guide To Success

The investment markets these days are pretty wild. Bear or bull, the ups and downs can be pretty drastic and unexpected. You’ve heard all the traditional wisdom: trying to time the market is next to impossible, so a long-term, diversified investment strategy is the way to go. Sounds easy, right? Of course it isn’t! If you’ve spent any time trying to build out a durable portfolio that can ride out the bumpy patches and truly soar during the good times, you know that it can be a pretty daunting task to get it right for you.

A CERTIFIED FINANCIAL PLANNER™ practitioner can help you manage your investments and make sure your strategy aligns with your personal values and financial goals. Forget about the short-term market chaos – great financial planners play a long game. They offer an adaptive approach with continuous monitoring and great communication to guide you through the complexities of investment management. Most of all, they provide you with the confidence that you’re doing what’s right for the future of your family and business. 

Keep reading as we explore the many variables involved in choosing a financial advisor for your investment management needs. We’ll dig into key considerations like market behaviors, tax considerations, and how to evaluate fee structures. In the end, the most important factors in selecting an investment advisor come down to trust, proactive communication, and your peace of mind.

Why You Need a CERTIFIED FINANCIAL PLANNER™ Practitioner

Simply put, a CFP® is a partner in your success. They are obligated to work for your best interests first, not theirs. When you find the right financial planner, they can bring their expertise to navigate market volatility, tailor a financial plan based on your individual circumstances, and provide strategic guidance for risk management.

• Market Volatility: There were five big market shocks between 2000 and 2007. From 2007 to now, the number of significant shocks jumped to sixty-five(!). Investors have come to understand that volatility is the new norm, which makes navigating markets on your own far more challenging and nausea-inducing.
• Timing the Market: The moods and machinations of investment markets are fickle, and ruled by so many dynamic forces that trying to decide the right time to enter and exit a position is a very risky endeavor. Historical data reveals that seven of the top ten best-performing days in the stock market occurred during sustained declines, but data shows that jumpy investors tend to bail out at exactly these moments, sacrificing long-term gains. 

How Financial Planners Manage Tax Efficiency in Investments

Tax management and efficiency strategies are a vital component of managing portfolios. Trading strategies that are proactive and effective can add meaningful after-tax returns of up to 2%. Good financial planners will manage tax efficiency in these three areas:

• Qualified vs. Nonqualified Dividends: Qualified dividends are taxed at a lower capital gains rate  while nonqualified dividends are subject to a higher standard income tax rate. A tax-aware investment advisor will work on getting in as many qualified dividends into your portfolio as possible.
• Tax Loss Harvesting: Every year, the stock market will have negative performance at some point. Tax loss harvesting is a strategy that involves selling investments that have experienced a loss to offset gains in other investments, thereby reducing your current tax liability. By simultaneously selling an investment that has unrealized loss and buying a similar investment, you don’t lose exposure to the markets. 
• Asset Location Optimization: Allocate investments strategically across your various accounts based on their relative tax treatment (ex: tax-deferred IRA, tax-free Roth, taxable non-retirement, etc.). Ideally you want your portfolio to remain resilient and responsive to changes over time, and this approach aims to enhance tax efficiency and adapt to evolving tax laws. 

How do CERTIFIED FINANCIAL PLANNER™ Practitioners Get Paid?

As an investor, you’re probably pretty conscious already about fees. If not accounted for correctly, the different fees associated with maintaining your portfolio can derail your strategy and eat up your returns. It’s important, therefore, to understand the fee structures of your investment managers. 

There are three main compensation models used by financial management firms:

1. Commission-Based: Your advisor receives commissions on trades made on your behalf. This offers a straightforward fee structure for individual transactions, but can really add up. This structure may also incentivize your investment managers to engage in more trading than is strictly necessary for the health of your portfolio. While paying a commission for each transaction may suit infrequent traders, be wary of potential conflicts of interest and accumulating charges if you trade more frequently. Frequent trading in your account may be a sign that your long term goals aren’t aligned with the interests of your advisor.
2. Fee-Only: Advisors in this business model only earn fees for their services that are paid directly by the clients they serve. Steering clear of commissions and kickbacks paid by the insurance and investment companies can help align the financial planner’s compensation with your overall financial goals. This model also goes beyond investment management and includes more general financial planning services. While many conflicts are eliminated, fees may run higher, especially for smaller accounts. 
3. Hybrid Model: Balancing fees and commissions aims to find a middle ground between simplicity and conflict avoidance. If your investment account is still growing and you don’t make frequent trades, offsetting the base fee you pay your advisor with sporadic commission payments might be the right structure for you. 

Communication is Key

When you hire a reputable and proactive financial planner, you’re not giving up control of your financial strategy. Instead, you arm yourself with the best available tools to make great decisions for your financial health. Ultimately, all the decisions are yours to make, but with great advisors behind you, you can feel confident that your decisions are well-informed and working in your best interests.

A consistent reason why investors leave their financial advisors is a lack of ongoing, proactive communication regarding the state of their investment accounts and financial plan. Tracking your performance should be easy and transparent. Regular portfolio status reporting is essential to a good partnership between you and your advisor. It should be easy to get in touch with your team, and you should expect to hear from them regularly as to the work they’re doing on your behalf. 

Conclusion

It’s important to pick a financial advisor that acts as a partner, keeps you informed, and, most importantly, makes you feel comfortable. You’ve worked hard to accumulate your wealth. You need someone who understands your goals and has the means and capabilities to execute your financial plan. 

At SK Wealth, proactive communication is at the heart of our services. Our report set clearly defines all your holdings, your cash-flow performance over multiple periods, and provides an easy-to-understand market benchmark comparison. We also include benchmarks matching your allocation policy so that you can see the comparison for yourself. Most of all, we’re easy to get ahold of when you need us.

For the last quarter-century, we have perfected The Integrated Financial Advantage™, a unique financial planning approach crafted to provide clients with tailored guidance, enabling them to lead with intention both tomorrow and today.

Click here to find out more about SK Wealth’s specialized financial planning and investment management services.