What to Look for in an Advisor

By Peter Rizzo

Life Settlements in a Retirement Account? Think Again.

Every day we see people who have tremendous results from their financial advisors and we also hear the horror stories. For some reason the Covid-19 crisis has brought out a myriad of different investment options all tied to advisors promising returns and safeguards to turn your small nest egg into a Large Dinosaur egg. It’s important to vet your potential consultant or advisor thoroughly for they can help you prosper or can cause you to look for the best attorney around – Here are a few questions to ask; and if they balk, run for the hills.

How are you compensated?

An RIA and fiduciary will always be compensated by advisory fees (fee-only advising). Don’t be afraid to go with someone who shares in your profits, for they share in your gains and will always have your best interests at heart.  Watch out for brokers who may recommend specific investments because they receive a commission.

Do you receive commissions for investing in specific investment products?

As above, your advisor should not receive compensation from anyone except you – the client. Outside compensation can create conflicts of interest that may hurt your portfolio.

Are you a fiduciary?

A fiduciary is an advisor that is legally required to always put your best needs first. Fiduciaries are held to the Fiduciary Standard, while brokers are held to the Suitability Standard. The difference is subtle but can certainly affect your portfolio’s performance.

How frequently do you communicate with clients?

Your financial advisor should be as responsive as you need them to be. As a client, you should be able to communicate with your advisor at a moment’s notice. The best firms will prioritize you, your goals, and your objectives, and will work closely with you to achieve them. 

What is your investment philosophy?

Each financial advisor will have a different investment philosophy. Generally, financial advisors take a passive investment approach, which is a long-term focus on achieving your goals and objectives. Some firms, will take it a step further and invest in small & value-tilted companies, which have tended to outperform over time. This is for people with a higher risk tolerance.

What services do you offer other than portfolio management?

Portfolio management is only one aspect of wealth management, and comprehensive financial plans go beyond the portfolio. Insurance planning, tax planning, estate planning, retirement planning, and charity planning all fall under the domain of wealth management, and the optimal advisor will incorporate each into your financial plan.

What licenses or certifications do you have?

Certain designations can differentiate your financial advisor from others. For example, a Certified Financial Planner (CFP) is an individual that has passed a rigorous test and has spent at least 2 years in the industry. An advisor that is a Chartered Financial Analyst (CFA) is part of a small group that has passed a rigorous 3-part test over many years. Ask your advisor what their credentials are for a better understanding of their knowledge of the financial industry.

What makes your firm different than other wealth management firms?

Each firm has its own story and history, and with it their own unique perspective on wealth management. Understanding what makes a firm different can provide insight into the culture and philosophy of the company.

Are there other individuals that I’ll be working with?

Many financial advisors will have a team of professionals behind them to coordinate the different aspects of your portfolio.  For example, a team may consist of a financial analyst, an insurance planner, and an estate planner ensuring you receive a more comprehensive financial solution. 

How do you create financial plans for your clients?

Advisors should always customize a financial plan to meet the specific and unique needs of a client.  What works for a 56-year-old partner may not work for a 33-year-old mother. Each individual’s unique situation should be taken into account and the financial plan should be customized to their needs accordingly.

These are just a few questions to ask. Even if you are investing with your best friend asking the tough questions will insure successful results. Remember to have a clear understanding of what your goals are and what you expect from your advisor.

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