Choosing a financial advisor is not easy. The right financial advisor for your needs understands your financial goals and works as per your risk tolerance. While it is important to look at a financial advisor’s credentials, education, past service delivery reports, etc. before deciding the most suitable advisor for you, it is also important to note whether the advisor offers their service locally or nationwide. Some investors only engage with local financial advisors on the notion that they are more trustworthy than advisors that offer their services virtually (over the phone or video call).
When making your decision to hire a financial advisor, you should ideally choose someone who has the financial expertise to meet your requirements rather than make a decision based on their geographical proximity. While proximity offers some potential advantages, the service, customization, and expertise offered by the advisor should take precedence in your decision-making.
So, whether you are looking to connect with a new financial advisor or seeking to replace your current advisor, you should not make the location a top priority. It can be a factor that you take into consideration, but it does not deserve to be a primary selection parameter.
Expertise vs Proximity: Which Should you Choose When Hiring Advisors?
When you hire a financial advisor, you are assigning them the responsibility of preserving and improving your wealth. They create strategies and equip you to achieve your financial goals and dreams. Hence, a financial advisor who has expertise and knowledge that is suited to your specific financial needs is just as important, if not more, than them being located in your area.
When you choose a financial advisor solely based on their proximity to you, you risk making a choice that may not be the best for your needs. With the wrong advisor, you risk losing money if your assets are allocated poorly or not customized to your needs. Unless your local advisor is tailored to your financial needs, they might not be able to adapt your portfolio and investment strategies to your lifestyle and needs. It is essential to remember that hiring a financial advisor is a huge decision and not one you should take based solely on their geographical location.
That said, you cannot completely sideline the proximity of a professional. Hence, you should decide how much weightage or importance you should give to finding a local financial advisor.
For this purpose, here are some critical questions to ask when making your decision to hire a local or non-local financial advisor:
1) How do you prefer to communicate?
Before taking the final call on whether to engage with a local advisor, consider what form of communication you prefer. If you are comfortable communicating over the phone or via email about important topics and transactions regarding your finance, the location of your advisor may not be a concern for you. Many people also prefer written communication, rather than making time to have in-person discussions. In such cases, there is no need for face-to-face interactions with the advisor. This also helps save a lot of time and is highly efficient in some cases. However, if you prefer face-to-face meetings and real-time discussions with your advisor, we suggest you should opt for someone closer to your home.
2) What type of services do you need?
Ideally, a competent financial advisor can assist in all matters related to your finances. This includes investment management, tax management, retirement planning, debt management, estate planning, inheritance and succession planning, and more. For example, if you wish to hire a financial advisor for portfolio management, you can choose a competent advisor located anywhere in the world. The advisor will remotely pick an initial allocation based on your profile analysis, rebalance your portfolio as required, and undertake tax-loss harvesting when beneficial. However, since your communication with your advisor is done virtually, your advisor will need ongoing input from you on how to manage your portfolio. Alternatively, if you have hired a financial advisor for in-depth financial planning services, like estate planning or retirement planning, you would need continued communication with them. If you do not prefer to have this communication remotely, you should hire a local advisor. Additionally, if you wish to engage with a professional who can provide state-specific tax planning, a local financial advisor is certainly a better choice.
An engagement with an advisor needs to be cost-efficient and productive. Hence, it is advisable to expand your search beyond the local neighborhood to find the perfect balance. Financial advisors have been working with both local and non-local clients for years. The primary objective is to hire an expert who is capable of foreseeing and walking you through any financial hurdles, enabling you to fulfill your financial dreams.
The Emerging Field of Financial Technology
When you restrict yourself to finding an advisor locally, you might be limiting the fulfillment of your monetary objectives. Later on in life, if you happen to change your residence or career and/or relocate to another city, working with a financial advisor who offers remote services may seem like a smarter option so that you do not have to go through the entire search and hiring process yet again.
Times are changing, and the world is more interconnected and technologically advanced than ever. The penetration of technology in finance and investing has increased manifold. ‘Fintech’ is now an accepted terminology, and these trends are challenging the traditional delivery of financial services. A good example of this is the increasing use of Robo-advisors for financial advice.
Innovative financial products such as the Dynamic Asset Allocation Funds that automate portfolio rebalancing (within the fund), Systematic Investment Plans (SIP) that automate investment as a whole, or the plethora of investment apps that promise to make equity investment easy. At some point, you will have to use technology to either communicate with your advisor or automate your finances. That seems to be the natural course – the way things are progressing in the industry. In such dynamic times, it seems prudent to open up about communicating remotely with your professional financial advisor, which therefore does not mandate them to be locally sourced.
So, should you hire a local financial advisor?
This depends on your requirements and preferences. However, a few points can help you make this decision more wisely.
Reasons Why the Location of Your Advisor is Not a Primary Concern
1. Expertise Vs. Proximity: In making your decision to hire a local advisor, it is important to not compromise on the quality of their service. Especially if you are a high-net-worth investor, you should get the best of service. That means one must be ready to bring onboard a qualified financial advisor even if they aren’t in your locality.
2. A local financial advisor may not be more trustworthy: Generally, people believe that a local advisor is more trustworthy than a non-local one. But this theory is nothing more than a misconception. A local advisor does not offer a promise of trust or better service. The perception of trust stems from having a face-to-face conversation with your advisor, but that does not make them more trustworthy, more credible, or competent. Trust between both parties is built on understanding, communication, honesty, dedication, expertise, and confidentiality rather than only proximity. Trust grows when the person you chose listens to your concerns and devises targeted plans with measurable results rather than just prescribing pre-determined investment plans which are the same that they offer to every other customer.
3. Technological advancement: Technology has made it possible to conduct comprehensive meetings with an advisor virtually. Improved technology in video calls has made a non-local relationship more accessible and just as efficient as face-to-face meetings. Even though local meetings offer a temporary sense of comfort, you can achieve the same comfort level even through the good use of modern technology.
4. Reporting is always done via email or online cloud access: As a standard practice, nearly all investment reports, financial documents, estate plans, tax details, etc., are now sent by the financial advisor on your email or cloud access. This is irrespective of whether or not you hire a local or an offsite advisor. So, when it comes to reporting, engaging with a local financial advisor provides no advantage.
5. Investments are not related to your location: Whether you choose to invest in individual stocks, bonds, hedge funds, index funds, commodities, etc., the state of your residence has no bearing on these investments. In some cases, like the 529 college savings plans, your location might affect your account rules. Taxation also may vary from place to place. But, even in cases like this, your advisor is likely already aware of the local laws and regulations and can serve you diligently; that is a mark of a capable financial advisor. The growth of funds as such has little to do with where you live. Moreover, fiduciary advisors place your assets in custodial accounts or national firms. This implies that irrespective of where you are located, you can access your custodial account from anywhere.
Reasons why the location of your advisor matters
While it stands to be true that location does not matter, here are some benefits of hiring a local advisor.
1. In-person meetings: Clearly, the main benefit of opting for a local financial advisor is that you can meet in person and have face-to-face conversations regarding your money matters. For highly personalized and individual concerns, a face-to-face conversation is the best way forward. Moreover, for services like inheritance planning or tax management, you can hold in-person meetings more frequently in the comfort of your home or office. Also, these services require the involvement of other specialists like your attorney, etc. When you have a local engagement, these meetings become more flexible and easier to plan.
2. Local knowledge and expertise: Hiring a local financial advisor is a great move if your portfolio primarily comprises investments in local assets or real-estate funds. It is more likely that a local financial advisor will have more expertise and knowledge about the local market, and thus, it would be beneficial to engage with them rather than a non-local advisor. However, even in this situation, a local advisor is not a requirement but a choice. It depends on how heavily you wish to involve your financial advisor in your real-estate decisions. Local advisors also possess a better understanding of the local business market.They have moreon-the-ground awareness that can strongly work in your favor, depending on the nature of your business and your goal.
3. Wider geographical choice: If you happen to live in a big city, you may find a good number of competent advisors to vet who reside locally. In contrast, in a smaller city, the number of qualified and renowned advisors vying for clients may be limited. Thereby, there is a possibility that the established advisors are too busy and caught up to deliver to their best potential. In a larger city, there is a higher probability that you are in proximity of an advisor who is an expert in their field and whom you may be able to trust your money with.
Based on these factors, you may decide how important the proximity of a financial advisor is for you. Irrespective of whether you choose to engage with a local or an offsite advisor, it is critical that you make an informed choice after conducting due diligence.
How can you find the best financial advisor for your financial needs?
Whether you choose a local or a non-local financial advisor, you should find the best financial advisor as per your needs.
Here are 8 tips that you can use to find a perfect match as far as financial advisory services are concerned:
1. Assess your financial needs and requirements: You must understand your financial situation before you look for someone to manage your money for you. You should know your income, your spending habits and figures, your saving goals, and other factors. Some investors might wish to use their wealth to make more charitable contributions. Some might prefer to invest in retirement accounts or college savings plans like 529 plans, etc. Some others might want to invest in real estate, etc. Know what you want to do with your money, what is important to you, and what fits your risk tolerance. These parameters help your financial advisor assess your requirements better and create a personalized strategy instead of using a great strategy that might work well for someone else but miss that mark for you.
2. Know if you want a local or non-local advisor: Understand your requirements and determine if you wish to engage with a local or non-local advisor. Does your financial advisor need to be in the same city as yours? How often do you want to communicate with your advisor? Are you comfortable with remote communicating tools? In most cases, location does not matter. Today, most meetings can be done online, and geographical borders do not restrict most investment choices. However, the choice entirely depends on your preference. The idea is to choose someone who is an expert and not just an advisor who is available locally.
3. Ask targeted questions when hiring a financial advisor: To understand a financial advisor better, it is wise to ask them a few questions like:
· What is their fee model?
· What are their qualifications, certifications, and licenses?
· Do they follow a fiduciary standard?
· What is their investment fundamental?
· What do they plan to do to minimize cost and maximize returns?
· Do they believe they can outperform the market?
· What is their mode and frequency of communication?
· Who will address your queries and concerns?
· What reports can you expect?
· What kind of measurable targets do they set and have achieved in the past?
4. Seek certifications from advisors: It is ideal to engage with an advisor who holds qualified certifications like Certified Financial Planners (CFPs), Chartered Financial Consultants (ChFCs), or Accredited Investment Fiduciary (AIF). It is also beneficial to hire a professional who is governed by fiduciary duty. Fiduciary advisors, as per law, need to place your needs before their own. These advisors hold your interest in high regard before their own and tend to offer you genuine advice. There is a sense of assurance that your money is in good hands.
5. Find out the fee model of the advisor: A financial advisor can use a fee-based or fee-only model for charging their clients. Each mode has its advantages. You can pick whatever is suitable for your situation. Some advisors may charge on an hourly basis too, or as a percentage of your assets under management. Speak upfront about this with your advisor and figure out all components of charge before hiring an advisor.
6. Monitor the investment advice provided by your advisor: A noteworthy point is that it is not wise to liaison with someone who boasts about outperforming the market. Your advisor should consistently monitor your investments’ returns and risks and apprise you of the details at a pre-agreed frequency. You should feel comfortable discussing your monetary matters with your advisor. It is also good if your financial advisor schedules face-to-face meetings at least once in a while – even if over a video call.
7. Understand your financial advisor’s work ethics and area of expertise: When hiring a financial advisor, assess if they understand the market’s nature and can work well, even under stress. Generally, if your advisor is attentive, with a clearly defined strategy and a proactive investment approach, your money is in the right hands.
8. Seek references and reviews for potential advisors you wish to hire: Get client references and read online reviews about financial advisors you are interested in hiring. It is good to do a constructive background check. A competent financial advisor is most likely to have favorable client reviews, online feedback, and ratings. Further, you should confirm the educational qualifications, credentials, current legal agreements, etc. Keep a lookout for any illegal convictions or any legal action taken against the financial advisor. You can confirm the discipline records, conflicts of interest, etc., on the FINRA Disciplinary Actions Online database.
A financial advisor is the custodian of your money and the enabler of your secure financial future. Hence, it is advisable to choose a competent person who holds the necessary qualifications and expertise rather than rely on someone only because of their proximity to your location. You can use the Paladin Registry tool to find a top-quality financial advisor. By answering a few questions, the tool will match you with 1-3 financial advisors free of cost! You also get free access to their credentials and ethical standards. Also, while using this resource, you will be able to specify the preferred locality of your advisor to help decide what option works best for you.
To learn more about the author William Hayslett view his short bio.
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