Selecting a financial advisor can feel like an overwhelming task. After all, it’s not just the advisor you’re considering, but the firm itself and everyone they employ. All of the team members, from the tax specialist to the client service manager will have a hand in your financial health. To make the decision even more challenging, there are so many factors to consider. Do you agree with the firm’s investment philosophy? Does the firm offer services that match your individual needs? And, most importantly, can you trust the advisor to act in your best interest?
No to mention, that you may be entering into a relationship that will impact multiple generations of wealth. When the time comes, many of our advisors work with our client’s children, grandchildren and beyond. There are a number of reasons to consider an advisory relationship. Perhaps you’ve accumulated enough wealth that it’s time to get a professional opinion. Or, maybe, you’re wondering if your current advisor is right for you. No matter the reason, you won’t want to make this important money move without considering these eight questions.
#1: Is Your Potential Advisor a Fiduciary?
A crucial factor is whether the advisor you’re considering is a fiduciary. At a big-picture level, there two types of standards in the financial services industry. The suitability standard requires that the financial professional make suitable recommendations for the client.
The fiduciary standard is much stricter. Fiduciaries are required to act in the best interest of their clients. The main difference between the two standards is that suitability allows for commissions to be made, whereas a fiduciary acts independently with no influences other than what’s best for the client.
#2: Who Do Your Friends Work With?
While sometimes advisors are chosen based on the firm they work for, more often than not, people choose an advisor based on finding an individual they want to work with. How do you find the right person?
A great place to start is to ask a friend or colleague for a recommendation. You’ll want the referral to come from someone who has worked with the advisor, ideally for several years. Be sure to ask questions about satisfaction with investment performance and what it’s like to work with the advisor. I recommend asking to meet with the advisor in a more personal setting.
As a part of the “get to know you” process, you’ll no doubt go into the office to review your financial statements. However, a good advisory relationship starts with a personal connection. See if the firm has any upcoming events or meet prospective advisors in a casual setting. See how they engage with their existing clients and be sure their personality is a good match for your preferences.
#3: Is the Chemistry Right?It’s important to have a good connection with the advisor you choose, so you can be comfortable talking about everything related to your financial situation. You’ll want to feel that your advisor understands you and your goals. Money is a sensitive subject, and financial goals are often related to personal topics like marriage, children and hopes for the future. Finding someone who’s easy to talk to should be high on your list.
#4: Do You Have Confidence in The Advisor?Because you’re putting your financial well-being in the advisor’s hands, you’ll want to work with someone who is good at advising. No one has a crystal ball and can predict what the markets are going to do — and anyone who says they can you should immediately cross right off your list. However, you’ll want the one you choose to be thoughtful about dealing with money and investing — someone you confidently believe will steer the ship for you.
#5: Is the Firm Full-Service?Depending on the extent and complexity of your wealth, you may want an advisor who can help take care of many of your money matters, such as financial planning, tax planning, estates, trusts and investment management. A full-service firm can deliver a more streamlined experience and will require less coordination among financial professionals on your part.
#6: Does the Firm Manage Investments In-House?
Many people who put themselves out there as a “wealth manager” or “wealth advisor” are essentially just investing your money in outside firms, such as an international stock fund or bond fund.
In contrast, other firms, including ours, have an in-house investment team that’s managing all the funds. This means we’re directly accountable for the performance of the investments. In-house investing capabilities giving clients a place to turn to for information when things are going well and someone to direct questions to when the returns aren’t as strong.
#7: How Well Have the Investments Performed?
Many advisors and firms have difficulty answering this question. But others, like ours, have investment records and performance calculated by an outside party. This investment track record allows our performance to be benchmarked versus the market or other investment managers.
This type of bottom-line assessment helps you clearly see how the firm is doing and the relative performance of your investments.
#8: How Reasonable Are the Fees?
For a brokerage house that has suitability standards, different investments could be recommended to clients, with different fees associated with them, depending on how much money the broker wants to make. Some investments offer upfront sales commissions. There’s nothing illegal about these types of investments, but they tend to pay a disproportionate amount of money to the brokers. While it’s disclosed to investors in the small print, no one really knows or understands the costs. And higher costs eat into the earnings of the investment.
One way to avoid this is to work with an advisor who has skin in the game. At RVP, most of our employees are invested in some of the same strategies as our clients. You can bet that an advisor at a brokerage house is not buying a loaded mutual fund or a product that has a high-selling concession for themselves.
Remember, You’re Not Alone
At the end of the day, it’s your money and you’ve worked hard for it. It’s important to put your trust in the right firm. By asking the right questions and doing your homework, you’ll achieve your goal of finding a hardworking, honest, straightforward fiduciary advisor who will work in your best interests to help you reach your financial goals.
About the Author
Maury Fertig co-founded Relative Value Partners (RVP) in 2004 where he currently serves as the firm’s Chief Investment Officer, overseeing all investment strategies and client relationships.
Maury is the author of The Seven Deadly Sins of Investing: How to Conquer your Worst Impulses and Save your Financial Future. He has been quoted extensively in business media such as Barron’s, The Wall Street Journal, Bloomberg, Dow Jones and Investment News and appeared on CNBC, Bloomberg Television and Morningstar.com. Maury also authors a column about income strategies for Forbes.com.
The information contained in this article is obtained from a variety of sources which are believed though not guaranteed to be accurate. Past performance does not indicate future performance. This article does not represent a specific investment recommendation.
No client or prospective client should assume that the above information serves as the receipt of, or a substitute for, personalized individual advice from Relative Value Partners, LLC which can only be provided through a formal advisory relationship. Clients of the firm who have specific questions should contact their Relative Value Partners counselor. All other inquiries, including a potential advisory relationship with Relative Value Partners, can be directed here.