The Single Most Important Question To Ask a Financial Advisor
Steve Lockshin, one of the top-ranked financial advisors in the U.S. talks to Betterment about finding an advisor: what to ask, red flags to look for—and why online advisors offer an advantage.
It’s possible to handle your investments and savings on your own, if you have one thing: That’s called discipline.
Unlike human investors, software is unemotional and can help you do things you might not want to do on your own.
Financial advisor Steve Lockshin pulls back the curtain on his industry in the way only an insider can. In his new book Get Wise to Your Advisor (Wiley, 2013), he reveals how some of the biggest Wall Street institutions push their advisors to sell products that are not in an investor’s best interest—and how that can undermine your personal success.
Instead, Lockshin advocates for transparency in the industry, and says many people may not need a financial advisor at all, given the emergence of modern online financial advisors like Betterment. His pursuit of making the system work for consumers—not advisors—has earned him the distinction as one of the top 3 financial advisors in the nation by Barron’s for the third straight year.
We spoke with him recently about the state of the financial advice industry—and what you should be looking out for when on the hunt for an advisor, whether it’s an online service or a person.
What’s the first mistake most people make when choosing an advisor?
People tend to believe investing is complex and that they have to have someone to do the work for them. Investing is actually much easier than many investors fear it may be. With so many goods and services on the market—both investment products and financial services—the key is to find a signal in the noise. Simple solutions are often the best solutions.
Do most people need an advisor?
It’s very possible to handle your investments and savings on your own — if you have one thing: That’s called discipline. Much like dieting, most of us know what to eat and how to exercise; yet often we need something or someone to assist us with our discipline. A good live financial advisor can help with discipline. That’s why I also like Betterment—it’s a simple solution for automating your investing and savings that keeps you on track.
How much should an advisor’s fee add to your all-in costs?
You can get very good financial advice for as little as .15%—or about $150 for $100,000—invested for your assets under advisement. Make sure you know what you’re paying. Trust, but also verify.
The industry is riddled with conflicts of interest, buried fees and unnecessary complexity. However, by asking a few questions, and doing just a bit of homework, you can find the right fit. A good advisor can be worth their fee if they help you make great decisions (and keep you from making poor choices). The cost shouldn’t exceed 1.0% of your assets under advisement.
What is a fiduciary, and how do you know if your advisor will fulfill that role?
You don’t. That’s one of the most frustrating parts of the current state of the financial advice industry. A fiduciary is a very important distinction investors should rely upon and means he or she has no conflicts of interest with you. There is a simple question you should ask anyone who claims to be one: “Do you make commissions on my account or do you make more by selling me one product over another one?”
Beware the advisor that claims to be a fiduciary and who is still paid commissions that differ by product (in fact, most fiduciaries won’t even employ commissions as a compensation tool)!
How does automated investing fit in with the traditional advisory model?
Software-based investing is still a new field, but it is very well-poised to serve a wide variety of investors at a low cost. I invested in Betterment (as both an investor in the company and as an individual investor in the strategies) because I truly believe that low-cost, disciplined investing is an important resource and Betterment does it well.
Unlike human investors, software is unemotional and can help you do things you might not want to do on your own. If your financial advisor is merely acting as a gatekeeper to asset allocation and fund selection—things I deem to be commodity services—consider using automated investing and saving money.
6 Questions to Ask a Financial Advisor Before Signing Up
At the end of the day, an advisor should feel like an advisor—they're there to help answer your questions about your finances. Get these questions answered.
How Does Betterment Calculate Investment Returns?
Understanding and using time-weighted and money-weighted returns within your Betterment dashboard.
Using Investment Goals at Betterment
Goal-based investing. The idea is prized among financial advisors—and our team at Betterment—but to the everyday investor, it’s often difficult to put into practice.
Explore your first goal
This is a great place to start—an emergency fund for life's unplanned hiccups. A safety net is a conservative portfolio.
Whether it's a long way off or just around the corner, we'll help you save for the retirement you deserve.
If you want to invest and build wealth over time, then this is the goal for you. This is an excellent goal type for unknown future needs or money you plan to pass to future generations.