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One Size Does Not Fit All: Three Questions to Ask Yourself When Evaluating a Financial Advisor

06/13/2015 06:09 am ET | Updated Jun 13, 2016

A new study by Dr. Joe Coughlin, Director of the MIT AgeLab, and his colleagues suggests that it may be time to consider more than quantitative data alone when evaluating the success of financial advisors. They examined 500 online reviews of financial advisors and identified the characteristics that were mentioned most often by clients. Dr. Coughlin and his team then detailed their findings in a whitepaper titled "In Their Own Words: What Social Media Reviews Reveal about Client Perceptions of Financial Advisor Value."

The results of the study were surprising, albeit not entirely unexpected. Among the seven most prominently valued advisor characteristics, more than half related to interpersonal skills. But such skills didn't just land on the list -- they actually topped the list. While the expertise of advisors was addressed often, whether they display empathy was also discussed, and at nearly equal levels. Personalization -- whether the advisor tailored services to the specific client -- trumped both expertise and the effectiveness of the advisor's services.

Whether you are looking to hire a financial advisor or are simply thinking through your existing relationship with a current financial advisor, I would suggest taking the findings of this study into consideration. Ask yourself three questions:

1. How are my conversations with my current/prospective financial advisor structured?

The only way for financial advisors to display empathy and to deliver personalized information is to learn about their clients and to show an interest in their clients' lives. When talking to a financial advisor, does he/she ask you questions about yourself and your life? Does he/she know and mention non-financial details about your life (i.e., actively asking "How is Jessica liking her first year at Penn State?" rather than passively asking "How are the kids doing?")? Pay attention to whether conversations are dialogic and whether you feel involved, or whether the conversation is generic and one-sided.

2. Is this financial advisor offering guidance that is specific to me?

Measuring success isn't just about whether your financial advisor generates returns. It is also about how well they help you reach your specific goals. As such, you should be the focus of any financial planning and budgeting conversation -- all decisions and strategies should be tailored to what you have told the financial advisor about your interests, your motivations, your dreams, wants and needs. One size does not fit all when it comes to financial advice, and you should be wary of a financial advisor who solely talks about and focuses on returns. The conversation should be equally focused on how those returns relate to you and your future.

3. Does the financial advisor show an understanding for my life stage?

We are operating in a four-generation workforce, and each generation was shaped by distinct experiences with regards to the economy and technology. As a result, each generation differs in terms of how they want to communicate (and be communicated with), what matters to them and the best ways to engage them. A prudent financial advisor will take these differences into account, finding ways to connect with you and work with you in a manner that is suited to your preferences. What's right for one person is not necessarily right for every person, and what makes sense for a Baby Boomer might not make sense for a Millennial. Pay attention to how a financial advisor navigates the generations -- yours, in particular.

Working with a financial advisor can be a fruitful, productive practice, and it can be even more so if you work with one who values you and your individuality. In my experience, most investors aren't holding their advisors to the objective of outperforming a given index -- oftentimes those indexes are compiled without regard to risk tolerance or time horizon, among other important considerations. Most investors do desire that their wealth be utilized as efficiently as possible to realize their long-term goals. That's why I believe that the benchmark for advisors should be you, the investor -- not a compilation of market statistics.

Hartford Funds are underwritten and distributed by Hartford Funds Distributors, LLC.

The MIT AgeLab is not an affiliate or subsidiary of Hartford Funds.

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