When it comes to choosing an advisor to help with your personal financial issues, what’s your plan for sifting through the myriad different service offerings to find one that’s right for you?

Our suggestion?  Start with an understanding of why you need an advisor.  Look at immediate and long-term challenges, and identify the most important financial planning objectives for you and your family.  Do you primarily want to develop an investment strategy?  Secure your retirement?  Pay for children’s education?  Pass along assets to your heirs?  These issues will become the focal point of your financial plan.  Your financial advisor should help identify and manage the best means to reach these ends.  Select an advisor whose approach and services, in your mind, gives you the best chance of meeting your objectives.

Here are some service aspects to consider as you screen your candidates.  Don’t expect a single “best” answer to each question, but pros and cons to think about in light of your own personal circumstances and preferences.

1.      What range of services and expertise do they offer?  What is their primary service offering?

·         Do they manage or recommend investments?

·         How do they approach financial planning, including tax, retirement and estate issues?

·         Do they sell financial products such as insurance and annuities?

·         How frequently will they meet with you, and what is their availability between meetings?

Think about what’s the best mix for your needs and objectives, now and in the future.

2.      What professional category are they in; including licenses, credentials and certifications?

·         Registered Investment Advisors and Certified Financial Planners (CFPs) offer broad advisory and investment management services

·         Brokers (e.g., “Series 7” licensees) primarily sell securities

·         Advisors affiliated with insurance companies will emphasize insurance products

·         CPAs offer additional tax expertise

Think about how these designations influence their capabilities and product/service orientation; as well as their legal and ethical obligations to act in their clients’ best interest.

3.      Is the firm independent or affiliated with a large financial services institution?

·         Independents develop their own investment recommendations, product/service offerings, and custodial arrangements.

·         Financial advisory arms of larger organizations rely on their “parent” to define product/service offerings and back-office services.

·         What do you prefer:  relationships with large organizations or with individuals?

Think about which structure offers the most appropriate range of services, quality of service, reliability and flexibility to meet your specific needs.

4.      Is the firm staffed appropriately to support its client base?

·         What is staff size relative to client base?

·         What are the experience/credentials of staff members?

·         What is the role and availability of each staff member in supporting you as a client?

Think about the likelihood of them maintaining the level of personal service you desire.

5.      Do they provide ongoing investment management service under a “discretionary” account management model, or “non-discretionary” advice and/or transactional services?

·         Discretionary managers have responsibility for staying on top of your investment accounts, while non-discretionary advisors check in periodically and need your approval for any transactions.

·         Do you want a professional to manage day-to-day investment decisions, or do you prefer (and are you equipped) to maintain that responsibility yourself?

Think about what role YOU want – and how much personal interest, time and experience you can contribute – in managing your investments.

6.      What fees will you pay; how is the advisor compensated?

·         Will you pay a fixed annual percentage of assets under management?  Is this the only fee you will pay?

·         Will you pay commissions for trading in your account?  What are they?

·         Does the advisor receive any compensation from third parties for selling their products?

·         What are typical expenses within investments used by the advisor (mutual funds, annuities, etc.)?

·         What does the advisor charge for financial plans and other projects?

Think about which model gives you the greatest value, and gives the advisor the most incentive to work in your best interest.

7.      What is the firm’s approach to the service of investing clients’ money?

·         Do they focus on broad asset allocation or specialize in certain investment class(es)?  How will your portfolio be spread over various types of investments?  Will it be relatively diversified or concentrated?

·         What is their flexibility to accommodate various risk/return profiles among their client base?

·         How individualized is each client’s portfolio?

·         What investment vehicles do they use:  Mutual funds, exchange traded funds, individual securities, separate accounts?

·         What is their investment selection criteria and process?

·         Do they adhere to a specific investment philosophy (for example, value vs. growth orientation; fundamental vs. technical analysis)?

·         How much emphasis do they place on minimizing fees and tax consequences related to trading in your account?

·         Are they adequately staffed to handle both internal portfolio management processes and client care?

·         How do they report performance of your portfolio?  What benchmarks do they use for comparison purposes?

Think about the level of risk you are willing to accept, your time horizons and your cash flow needs; as well as how the investment management component fits into the overall service package. 

Note that “return on investment” is not listed as a selection factor.  While it is reasonable to review historical performance data, there are few statements that are both truer and more frequently ignored than “Past performance is no guarantee of future results.”  All advisors attempt to achieve competitive returns for their clients, but it is the one aspect of service they control the least.  When looking at historical data, consider the numbers in relation to market benchmarks, more as an indicator of consistency and risk-related variability than the rare ability to consistently generate superior returns.  Use the factors listed above to make your own judgment about the likelihood that the advisor will produce reasonable returns consistent with your risk tolerance.

Finally, consider intangible factors such as rapport with the advisor, perception of trust, personal empathy, etc.  After all, you are entering into what may become a life-long relationship!