By Kerry Hannon
NOT LONG AFTER WE GOT MARRIED, my husband and I decided it was time to set up a meeting with a financial advisor to review the merging of our financial lives. We knew that our lives had taken a significant turn with marriage. Plus, we had different money styles.
Of course, we wanted to have someone evaluate our retirement accounts and other investments, but we also had plans we knew would take some forethought and financial strategizing: starting a family, purchasing a home and continuing the travel we both loved. It took some searching, but we found an advisor who understands both of us. She meets with us separately and together, and has held our hands through more than one uncomfortable money discussion.
These days, because I write about money, I routinely get asked lots of questions about financial advisors. Lately, a lot of people want to know why, with so many choices out there, from target date funds to robo-advisors, they need anyone to help them choose investments. I generally tell them that financial advisors do much more than offer investment advice—the best of them act as financial life coaches, helping their clients through many complex financial decisions and life transitions to help them pursue their goals.
Here are four of the most commonly asked questions that I get.
What does a good financial advisor do?
Industry experts and consumer advocates will tell you that a good advisor always starts with identifying your goals—uncovering what’s most important to you and what you want your money to do for you. After all, that’s why it’s called goals-based wealth management. Working with a good financial advisor means opening up about your hopes and dreams—and then turning that understanding into a personalized financial strategy that can help you make those dreams come true.
That goals-based conversation should cover all of your priorities—from your family to your career, how you’ll pay for future health care costs, where you may want to live in the future, how much travel you’re longing to do and what your giving goals are. It may even uncover some goals (starting a business? learning to fly a plane?) that you didn’t realize you had.
It will also take into consideration where you are in your life: Are you nearing retirement and looking to relocate, or just starting a family and wondering how you’re going to pay all those college costs? Will your parents need eldercare in the future? Have you just become a grandparent—if so, do you have a will and estate plan in place?
Only after you’ve discussed all that can you and your advisor begin to prioritize your goals and identify those that are most important to you—the must haves—versus those that are just nice to have, or aspirational. Once you’ve done that, you can talk about what sort of investments and financial strategies might help you meet them. "Then, as you reach life’s major turning points, you’ll want to keep checking in,” says Stacy Allred, managing director and head of the Merrill Center for Family WealthTM. “As your life changes, your priorities will change, too, and your advisor should be able to help you make important financial decisions every step of the way.”
What financial decisions can an advisor help me with?
“Think of it like this: Your advisor is a
thinking partner, and the financial strategy she or he will help you
create is like a personal financial roadmap you can follow to reach
your desired goals.”—Stacy Allred, head of the Merrill Center for Family
“Think of it like this: Your advisor is a thinking partner, and the financial strategy she or he will help you create is like a personal financial roadmap you can follow to actively pursue your desired goals,” says Stacy Allred, managing director and head of the Merrill Center for Family WealthTM.
No two people will have quite the same set of investment strategies, solutions or approaches. Depending on your goals, as well as your tolerance for risk and the time you have to pursue those goals, your advisor can help you identify the right mix of investments to help you reach them.
But the decisions don’t stop there. You may want to buy a second home—should you draw on your investments to pay for it or borrow the money? What if you inherit your parents’ home—is it smarter to sell it and invest the proceeds or rent it out for income? As you approach retirement, you’ll be faced with important decisions about how long to work, when to claim Social Security, what order to withdraw money from your various accounts and how to balance your need for income with your need to make sure your money lasts your whole long life.
In fact, there are so many financial decisions to be made at every stage of life that, at some point, people often begin to wonder whether they might benefit from working with an advisor--someone who has experience and access to a broad range of resources, in mortgage lending, for instance, or trust creation. Someone who can help them make sense of it all.
What is an ongoing relationship with an advisor like?
Once you’ve worked with your advisor to create a strategy that makes sense for you, you’ll meet periodically to make any adjustments that might be needed, based on market activity or changes in your life and the goals you’ve set for yourself. “Along the way, they won’t be afraid to challenge assumptions and push back where needed. They can play devil’s advocate to help you make more effective financial decisions,” says Allred.
When markets drop or behave in unpredictable and unsettling ways, an advisor can provide a valuable sounding board. By reminding you of your goals and the risk tolerance considerations you built into your investment strategies, they can help you stick to your strategy or discuss potential adjustments if conditions warrant it. They can also provide useful reminders of the way markets historically perform over the long term, which can help you keep your perspective.
“Financial advisors can be of great help if they will do the following two things,” says Dan Ariely, an author and professor of psychology and behavioral economics at Duke University. “First, they can help us fight against our nature when the stock market goes wild,” he says. “And the second thing is that they can help us figure out how to spend our money more wisely. What to buy and what not to buy in order to maximize our quality of life.”
How will I know if I’ve found the right advisor for me?
“Financial advisors can help us fight against our nature when the stock market goes wild, and they can help us figure out how to spend our money more wisely to maximize our quality of life.”—Dan Ariely, professor of psychology and behavioral economics at Duke University
Revealing your most intimate money profile to a stranger can make you feel vulnerable. So while your advisor doesn’t have to be your emotional confidant, he or she does have to be someone you trust and feel comfortable talking to face-to-face. And, if you’re married, that applies to both of you. Do you both feel a rapport with the advisor? Will they talk with you individually as well as together? When my husband and I first began searching for the right advisor for us, we encountered one who seemed most comfortable speaking only to my husband.
“It’s important to get a feel for whether they will take a goals-based wealth management approach to your strategies, rather than just focusing on investments and what the markets are doing,” says Matthew Wesley, director of the Merrill Center for Family WealthTM. “It’s also critical to get a handle on how deep the advisor’s experience is in serving clients with a similar degree of wealth,” he adds. Other topics to consider: the range of services that the advisor and the broader firm can provide (such as investments, philanthropy, trust services, insurance, mortgage and other lending solutions).
At its best, a relationship with a financial advisor allows you to have some confidence that you’re on the right path financially, so that you can focus on the things that you’re saving and investing for—your passions in life, your priorities, your family.
Kerry Hannon is the best-selling and award-winning author of a dozen books, including Money Confidence: Really Smart Financial Moves for Newly Single Women and Great Jobs for Everyone 50+: Finding Work That Keeps You Happy and Healthy ... and Pays the Bills. Her latest book, Never Too Old to Get Rich: The Entrepreneur's Guide to Starting a Business Mid-Life, came out in June 2019.