Signs of a good financial advisor

Consider the following characteristics when speaking with potential financial advisors.

Seeks to understand your situation. A good advisor will create an investment plan tailored to your financial and lifestyle ambitions. Such a plan will need to consider your current income, expenses and lifestyle as well as your financial future. It's a good sign if the advisor asks lots of questions before offering a specific investment solution.

Can offer help beyond investment planning. Your investment plans should probably be considered in the same context as other financial needs such as insurance, tax planning and estate planning. Some advisors have expertise beyond investment planning. Some rely on a network of other professionals for their expertise. No one is an expert in everything. Look for an advisor who knows when to consult with other experts.

Recommends a personalized asset allocation strategy. The appropriate asset allocation can reduce your portfolio's overall volatility. Your advisor should create an allocation strategy that attempts to keep volatility at a level that won't make you uncomfortable.

Tailors recommendations to your time frame. Your financial objectives may have different time frames, which will limit the range of appropriate investment choices. Your advisor should have a plan for making sure your money is available as future objectives draw near.

Schedules regular portfolio reviews. In addition to periodically rebalancing your portfolio to maintain the target asset allocation, your advisor should regularly assess if that target is still appropriate to your objectives and financial situation. Regularly scheduled meetings provide a framework for conversations about how your life has changed in ways that impact your investment plan. You should also keep your advisor informed about major changes when they occur. These would include changes in your income, an unexpected windfall or major expense, the birth of a child, or any life event with financial implications.

Explains the risks. Expect your financial advisor to explain the pros and cons of each investment choice. There's no such thing as a free lunch, so it's not realistic to anticipate a high return from a low-risk investment—nor should you expect high investment returns to continue indefinitely.

Keeps you informed. Make sure you have an understanding of how your advisor will communicate with you about market activity and changes in your portfolio. One benefit of using an advisor is that it frees you from the clerical tasks of investing, but that doesn't mean you shouldn't pay attention to your portfolio. Ensure your advisor understands how often you expect to be in communication and under what special circumstances.