The Informed Investor

Five Qualities of an Effective Financial Advisor

What if Warren Buffett called you today and offered to be your personal financial advisor? I bet very few people would turn him down. Buffett is the sweetheart of the financial world—someone who embodies a rare blend of intelligence and success mixed with humility and personability.

He’s a grandfather, a Midwesterner, and has owned the same modest family home for six decades…but he’s also worth over $100 billion, making him the sixth richest person in the world.

If Warren Buffett offers you advice, you might be inclined to take it. He has a proven track record and is not known for underhanded ploys or wild risk-taking. Some may consider him a little “old school,” but his methods have worked, and he wouldn’t intentionally lead another investor astray.

Many of Buffett’s qualities would make him a competent, trustworthy financial advisor—if he were to choose this profession. If we examine Buffet’s attributes, we find that they’re not terribly groundbreaking or unusual. Many financial advisors also embody these qualities, and it’s possible for consumers to recognize them. For this blog post, I’d like to discuss five important qualities to seek in a financial advisor and how to identify them.

First, however, let’s establish a few baseline characteristics.

The Essentials

My goal is to steer investors toward honest, disciplined, and fair financial advisors. With that in mind, I suggest consumers

• Seek fee-only financial advisors
• Avoid investment securities brokers, bankers, and insurance agents for financial planning
• Pay attention to professional designations/qualifications
• Do your research (using sites such as FINRA’s BrokerCheck, NAPFA’s Find An Advisor tool, and other resources I’ve listed in past blog posts) 
• Look for financial advisors who are committed to a fiduciary standard of care.

To me, these points are crucial. They are also distinct from a financial advisor’s personal qualities or attributes. Someone could be a perfectly likeable person yet take exorbitant commissions for any sales they make. I recommend doing your research, establishing whether a financial advisor fits the criteria listed, and then considering their personal attributes. In my opinion, the following five attributes are among the most important:

Authenticity

Have you ever had a conversation with someone who seemed to be hiding their true self at every turn? Maybe they avoid certain topics or give superficial answers when more depth is expected. Maybe they act guarded or skittish or overly buoyant. Whatever the case, you might not have been able to put your finger on exactly what was wrong, but you sensed that the person across the table was not truly authentic.

Authenticity is a vital trait in financial advisors. If an investor doesn’t believe an advisor is being authentic, why would they trust them with big financial decisions —decisions that could impact their life? If the advisor is hiding aspects of their personality, what else are they hiding?

There isn’t a step-by-step handbook on how to determine someone’s authenticity; you’ll simply have to rely on gut instincts. Fortunately, gut instincts/intuitions are more reliable than you might realize. Our brains are constantly processing information, and we may subconsciously pick up behaviors in other people that make us uneasy or distrustful. An article in Psychology Today highlights scientific research behind gut feelings and says, “…intuition is rooted in science. Gut feelings are the result of many channels of information processing and provide a road map that integrates our emotions and physical sensations with a given environment.”

If a financial advisor seems inauthentic, trust your instincts.

Curiosity About Customer

Good financial advisors are adept at interviewing. They know which questions to ask to start a meaningful dialogue about the consumer’s unique situation. More importantly, they will listen attentively to the answers they’re given. These are signs that the financial advisor genuinely cares about the consumer, wants to develop a deep understanding of their circumstances, and will create a personalized financial plan that caters to the consumer’s needs. 

On the flipside, a financial advisor who isn’t particularly interested in the consumer’s unique fact set will bombard them with advice/thoughts/ideas before the consumer has had a chance to share their circumstances and goals. 

Pay close attention to the interview process. Does the advisor include both you and your partner in the conversation, drawing out the individual who is less likely to speak up? Does the advisor ask insightful questions about what you’ve said? Are your critical questions answered openly and candidly or with vagueness and defensiveness?

Integrity

It’s not always possible to determine if a financial advisor is honest, but you can get a sense of their integrity through researching their background and interviewing them. Do their statements line up with what you already know about them and their firm? Do they say something one minute, then contradict themselves the next? Do their claims seem outlandish, such as guaranteeing overly optimistic yearly returns?

For example, a Bernie Madoff type would talk about things like “beating the market,” “guaranteed returns,” or “outperforming index funds.” If something sounds too good to be true, it probably is.

Contrast this with Warren Buffett, someone known to be realistic about potential outcomes and who exercises a healthy amount of caution.

Empathy

If you’re an investor who depends on a financial advisor to guide your financial future, you want to make sure that person genuinely cares about you and your situation. If you mention your parents recently passed away and you received a large inheritance, do they offer condolences? Or focus on your windfall?

Empathy is related to authenticity and genuine curiosity. It’s better to work with someone who cares and can put themselves in your shoes than someone who only sees their clients as dollar signs or “buying units.” The latter could be more concerned with pushing products or services (even if they’re not an exact match) than getting to know the people they are supposed to be serving.

Strategic, Disciplined, and Process-Driven

Warren Buffett is known for a long-held belief that “people should only buy stocks in companies that exhibit solid fundamentals, strong earnings power, and the potential for continued growth.[1]

In other words, he’s not a gambler. He believes in the merits of a value-based investing model and doesn’t easily stray from his principles.

It’s possible to determine if a financial advisor is strategic, disciplined, and process-driven by gleaning information from their website and by talking with them in person. Even before the interview commences, the advisor should show signs of being disciplined and process oriented. How organized are they? Are they punctual when you visit their office? Do they offer you a bottle of water and a parking validation stamp right away? During the interview, do they know which questions to ask to prompt a conversation? Do they listen to your answers?

In addition to noticing these clues about the financial advisor’s personality, you can also ask direct questions about their strategies, investment philosophies, and processes during the interview.

Are they committed to evidence-based investing and maintaining a disciplined approach? Or is their investment strategy fairly loose? Do they gravitate toward proven methods, or are they chasing the “latest thing”?

Larry Swedroe, Head of Financial and Economic Research at Buckingham Strategic Wealth, says in a recent article, “An advisor’s investment recommendations should be based on facts, not personal opinions.[2] A potential wealth manager’s advice should be derived from evidence-based, peer reviewed academic periodicals such as The Journal of Finance. All suggestions should be easily understandable, transparent and make sense.”

I wholeheartedly agree.

Once you’ve winnowed down your search for a financial advisor to a few potential candidates, it’s wise to interview each of them and pay attention to their personal attributes. Words are important, but so are behaviors and body language. If a financial advisor seems anxious, annoyed, closed off, or isn’t forthright with information, would you really trust them with your financial planning? If their processes or philosophies skew more toward Bernie Madoff than Warren Buffett, would you entrust them with a large percentage of your hard-earned wealth? When it comes to selecting a financial advisor, personal attributes matter.

References

1. Bloomenthal, A. (December 26, 2022). Warren Buffett’s investing strategy: an inside look. https://www.investopedia.com/investing/warren-buffetts-investing-style-reviewed/
2. Swedroe, L. (August 29, 2022). How to find an advisor you can trust. https://www.buckinghamstrategicwealth.com/resources/family-life-transitions/how-to-find-an-advisor-you-can-trust

Learn more about David Bromelkamp

Hello! I’m Dave, the founder and chief executive officer of Allodium Investment Consultants, located in Minneapolis, MN. I am also the author of AdvisorSmart for the Individual Investor: Your Guide to Selecting a Financial Advisor to Get Better Financial Advice. I am dedicated to educating individual and institutional investors about financial planning and investing. When I’m not helping people make investment decisions, I enjoy traveling, hiking and spending time with my wife and family.

The information provided is for educational purposes only and is not intended to be, and should not be construed as, investment, legal or tax advice. Allodium makes no warranties with regard to the information or results obtained by its use and disclaim any liability arising out of your use of or reliance on the information. It should not be construed as an offer, solicitation or recommendation to make an investment. The information is subject to change and, although based upon information that Allodium considers reliable, is not guaranteed as to accuracy or completeness. Past performance is not a guarantee or a predictor of future results of either the indices or any particular investment.