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 it employs. 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?
Not 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 will work with our clients’ children, grandchildren and beyond. There are a number of reasons to consider an advisory relationship. Perhaps you’ve accumulated enough wealth so that it’s time to get a professional to help with retirement, charitable giving, and tax and estate planning. 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 standards for giving investment advice in the financial services industry. The suitability standard requires the financial professional to make recommendations that are suitable for the client. The fiduciary standard is much stricter. Fiduciaries are required to act in the best interest of their clients.
Financial advisors in brokerage firms are often held to the “suitability” standard, whereas independent advisors are held to a fiduciary standard. Advisors who work in brokerage firms are often compensated by commissions made from selling investment products, while independent advisors usually work on a fee basis, which eliminates the conflict of interest that can arise with a commission structure. However, some advisors within brokerage firms are also held to a fiduciary standard, so the best approach is to ask.
#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. While satisfaction with investment performance is important, there is much more to consider, including what it’s like to work with the advisor. I recommend meeting with the advisor one-on-one before making your decision.
As a part of the “get to know you” process, you’ll no doubt meet with the advisor to review your financial information. 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, retirement ambitions and other 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 no one 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, trusts and estates, 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 represent themselves as a “wealth manager” or “wealth advisor” are essentially just investing your money with outside investment managers who may manage various types of stock and bond funds.
In contrast, other firms, including ours, have an in-house investment team that manages all of our clients’ funds. This means we’re directly accountable for the performance of the investments. In-house investing capabilities give 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?
If an advisor or advisory firm has difficulty answering this question, that’s a red flag. A firm should have audited investment records, and performance should be calculated by a third party. Having a clear investment track record allows our performance to be benchmarked versus the market or against other benchmarks or 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 adheres to the suitability standard, various investments could be recommended to clients, with different fees associated with them. Some investments offer the broker an upfront sales commissions. There’s nothing illegal about these types of investments, but they may result in your paying more to the broker than you think you should. While this is all disclosed to investors in the small print, it can be difficult to get at the true amount of fees and commissions paid, and higher costs eat into what you earn on your investments.
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 a financial advisor at a brokerage house is not buying a mutual fund with a high upfront “load” (fee) or a product that has a high sales commission.
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 Maury Fertig
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.
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.