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Since you are an entrepreneur, your financial advisor should know more than just how to trade securities. You need an advisor who can help you plan and achieve your financial goals, manage the risks you face along the way, and build a legacy for the next generation. You need someone who understands the cycles and constraints of entrepreneurship and has a track record to prove it.
Advisors who understand that their entrepreneurial clients need more than standard financial services are often entrepreneurs themselves. Business advisors are typically independent “registered investment advisors,” or RIAs, regulated by the Securities and Exchange Commission.
In this article, I will discuss some specific things business owners should look for when choosing a financial advisor.
Related: You Need to Meet with Your Financial Advisor to Find the Right One—Here Are 3 Tips to Do Just That.
Look for passion tempered by education and experience
Because of their experience as RIA owners, these advisors understand the phases of business development from inception and early growth to reaching larger size and, in some cases, selling the business. Motivated by a fascination with personal finance as it relates to business ownership, these advisors either focus exclusively on entrepreneurs or cultivate a healthy base of corporate clients as a passion project within a broader practice.
However, enthusiasm is no substitute for specialist knowledge. An advisor who can understand your business and personal finances will have experience managing unpredictable cash flows, developing investment strategies that complement your business, and navigating complex tax scenarios.
The experience of a consultant cannot be overemphasized. Has a particular advisor successfully guided business owners through various stages of growth and increasing complexity? Does this advisor have smart things to say about your industry? If yes, then it is likely that they have overcome similar challenges to you and can give you practical, actionable advice.
Remember, emotions cloud judgment. A business advisor knows that your business is everything to you and will keep you calm and focused – especially when the stakes are high.
Find an advisor who does business and has contacts
Some consultants who specialize in corporate clients enjoy working with entrepreneurs from different types of businesses, while others prefer to go deep into specific niches. The generalist can draw on a variety of scenarios when formulating solutions for your company, while the specialist enjoys the advantages of concentration – namely expertise and credibility – in your business area.
The choice depends on your area of expertise and your circumstances. Are you looking for an advisor who understands early-stage fundraising for tech startups, exit planning options for dentists, or the needs of a franchise restaurant owner in fast-growth mode? The answer should influence your choice.
An advisor suitable for an entrepreneur like you will have strong contacts in finance and finance-related areas outside of wealth management. Because advisors, who can draw on investment bankers, tax professionals, insurance advisors and legal experts, can put you on a solid foundation when it comes to identifying industry trends, developing valuation strategies, managing risks and staying on top of everything tax-related – and estate planning. An advisor with working relationships in these areas can provide comprehensive financial insight into your business and potentially open doors to broader business opportunities.
Related: Is Your Financial Advisor Right for You? Here’s a simple test to see if it’s time to move on.
Use these tips to find an advisor you can trust
A key factor when evaluating financial advisors is their potential as a long-term partner. Business owners should vet potential consultants by obtaining references from other clients in similar business stages or industries. These insights can tell you a lot about the advisor’s skills, work style, and overall responsiveness.
Taking the time to review an advisor’s professional certifications, compliance history, and fiduciary status (available online at BrokerCheck) are also important steps in selecting an asset manager. Fiduciaries, such as RIA-based advisors, are forced to put their clients’ interests first. Stockbrokers, on the other hand, hold themselves to a lower standard, requiring only that their advice is broadly “suitable”. If you are still unsure whether your advisor is a fiduciary, ask for a signed assurance that they will act as a fiduciary for you.
A consultant’s transparency regarding fee calculations and openness about the consultant’s sources of compensation are important trust-building factors and a must for avoiding conflicts of interest. It is also important that the relationship is cooperative. From the start, you want an advisor who will suggest solutions that fit your personal and business goals. This shows that the advisor has already taken the time to understand your values and risk tolerance and is committed to providing meaningful advice.
Put “works well with wife” at the top of your list
To assess this alignment, first share your vision and expectations for the relationship. Learn about the advisor’s investment philosophy and her approach to financial planning and portfolio construction in the context of business ownership. Ask how she tailors her advice to the specific needs of entrepreneurs, with case studies and anecdotes to illustrate her concepts. Meeting with the team supporting the consultant can also provide insight into the depth and breadth of expertise the consultant’s company offers.
As mentioned above, shared experiences as entrepreneurs can support long-term collaboration between you and your advisor. Consultants who run their own businesses have insight into the challenges and opportunities you face as an entrepreneur and can therefore provide appropriate advice.
Related: The Truth About Your Financial Advisor
Comprehensive advice to entrepreneurs should go beyond business and investment considerations. After all, for most of us, money is just a tool to help us achieve our personal, family and philanthropic goals. A competent advisor integrates these personal aspects of financial management into the business to ensure that the actions taken support other important aspects of the entrepreneur’s life.
Finding the right financial advisor is a crucial step for entrepreneurs who want to improve their financial health and make the most of their opportunities. A suitable consultant combines industry knowledge, experience, networking skills and a deep understanding of entrepreneurship. By choosing an advisor who can act as a partner, entrepreneurs can develop financial strategies that support their business and personal goals alike.