Many investors have turned to a financial professional for help when navigating economic uncertainty in addition to wanting to build a portfolio that will withstand market shocks and generate sustainable income in retirement. Choosing a financial advisor for either investment skill or financial planning capabilities may not be enough. You need to work with someone you not only know, like and trust to keep your best interests at heart, but also someone who can handle all the myriad aspects of managing your family’s wealth as your needs inevitably change over time.

It’s possible that the advisor who has brought you this far may not be the best choice to take you to the next level. They may not be equipped to advise you on the broader and more complex issues associated with managing your financial affairs. In this article we share a few thoughts on why your current advisor may not be equipped to help you manage the next phase of your financial journey.

How Financial Advisors Add Value

People usually decide to hire a financial advisor when they settle into a career, start a family or experience some other major life event. With busy lives, many find they don’t have the time or inclination to manage their finances themselves. Financial advisors have the training and experience to help put your financial situation on solid footing.

It’s not all about investment returns. The greatest value that an advisor can add is in seven areas of financial planning:

1. Cash management: You shouldn’t be investing in earnest until you’re confident you can stick to a monthly budget and manage debt. A good advisor will help you construct a manageable budget, let you know when your spending exceeds your means, and advise you when you need to dial it back. An advisor who ignores this aspect of your financial life probably does not have your best interest at heart.
2. Investment access: Larger advisory firms may be able to offer you investment options at a lower cost than you might get on your own, as well as access to highly rated, hard-to-access managers that may be closed to new investors. If your advisor has you in the most expensive share class or in funds that consistently underperform the market, it may be time to consider a change.
3. Asset allocation strategy: A capable advisor should create an asset allocation strategy tailored to your individual goals and risk tolerance. You receive the most value from an asset allocation strategy from an advisor who continually monitors your account and manages any (hopefully small) future adjustments to keep that allocation strategy on target. This can save you valuable time and give you financial confidence. If your advisor never recommends any changes to your portfolio, especially in volatile markets, that could be a red flag that they are focused on other aspects of their business.
4. Retirement planning: Many investors don’t understand the different ways that various retirement-focused accounts can be used in income planning: 401(k)/403(b), traditional IRA, Roth IRA, income ladders, annuities or taxable accounts. When an advisor helps you diversify your tax exposure, you may be better positioned to make your money last longer in retirement.
5. Asset protection: Once you have accumulated financial and other types of assets, you need to protect them from loss. An advisor can help you purchase various types of insurance, including property and casualty (P&C), life, liability/umbrella, and special policies or riders to cover valuable art or collectibles.  
6. Cohesive tax strategy: Likely half of the tax returns we review each year show that taxpayers don’t claim the correct amount for Qualified Charitable Deductions (QCDs), especially if they are paying them directly out of an IRA. Many don’t understand the different tax treatments that apply to 401(k), traditional or Roth IRAs or taxable accounts — or how to diversify their tax exposure. A forward-thinking advisor will help you decide when to take Social Security benefits or required minimum distributions (RMDs) — which can be surprisingly complicated, depending on your situation.
7. Estate and gift planning: A full service advisory firm should be able to quarterback the creation of your estate planning and gifting strategy — with input from your attorney and tax professional. This includes the creation of trusts to pass your wealth efficiently to future generations, or to distribute gifts of cash or securities to your loved ones or favorite causes in a tax-smart way.

How to Choose a Financial Advisor

If you’ve decided that want to change advisors, how should you move forward? We think you should interview two or three candidates. If you know a trusted friend or family member uses an advisor and has had a good experience, ask for a referral. As part of your research, you should evaluate each candidate using these criteria:

• Can you have a conversation with this person? Do they listen to you? Did they seem to care about you?
• What is the advisor’s experience and expertise? Has she been through at least one recession? Does she focus on one specialty, such as retirement planning, or is she more of a generalist?
• What is their training and credentials? Are they a Certified Financial Planner (CFP®), Certified Financial Analyst (CFA®) or Certified Public Accountant (CPA)?  
• Finally, pay attention to how the advisor is paid. While a registered representative and a registered investment adviser (RIA) are both legally bound to work in your best interest, the way they are compensated will tell you a lot about where their monetary allegiances may lie. It always is a good idea to conduct a background check through the FINRA, SEC or CFP Board websites.

A great advisor should be able to demonstrate their value many times over in a number of areas of your financial life. If you are not seeing that value in your advisory relationship, it could be time to move on. To learn more, please download our recent eBook, 7 Things Your Advisor May Not Be Telling You, available on the Insights page of our website, www.wealthenhancement.com.

This article was originally published in the Pioneer Press.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Disclosure: Asset allocation does not ensure a profit or protect against a loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax. A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply. Fixed and Variable annuities are suitable for long-term investing, such as retirement investing. Gains from tax-deferred investments are taxable as ordinary income upon withdrawal. Guarantees are based on the claims paying ability of the issuing company. Withdrawals made prior to age 59 ½ are subject to a 10% IRS penalty tax and surrender charges may apply. Variable annuities are subject to market risk and may lose value. Wealth Enhancement Group and LPL Financial do not provide legal advice or tax services. Please consult your legal advisor or tax advisor regarding your specific situation.