There are some important qualities to look for and other qualities to certainly avoid when seeking a new financial advisor.
There are some important qualities to look for and other qualities to certainly avoid when seeking a new financial advisor. Any potential advisor should be asked the following questions.
Have you ever been disciplined for unethical or improper conduct? Have you ever been sued by a client?
Ask, but don’t take the advisor’s word for it. Check the advisor’s history for violations or disciplinary actions with state and federal agencies or industry organizations. Checking is free and usually can be done online.
What are all your sources of income?
You want objective advice, so you need to know if the advisor has any potential conflicts of interest or divided loyalties. Understand if the advisor is receiving income only from clients (“fee-only”), or is paid by sales commissions, or both (“fee-based” or “fee-plus-commission”).
How easy is it to fire you?
Don’t sign any contracts that obligate you to keep an advisor for a set period of time.
Who will be the custodian of my assets?
Be very wary of an advisor who is their own custodian, a la Bernie Madoff. Choose one that houses your assets with an established third-party custodian.
What are your qualifications and training?
Only a handful of the more than 100 financial designations mean much. Many sound impressive but are meaningless. Top credentials are CPA (particularly CPA/PFS) for income- and estate-tax work, CFP® for financial planning, and CFA® for investments.
What services can you offer me?
Some firms offer limited services; others cover the full gamut of planning, taxes, and investing. A full-service firm isn’t necessarily better than a specialist, as long as the advisor can do what you need.
Will you personally handle my account?
At a large firm, you may first meet a salesperson you’ll never see again. Ask to meet with everyone who will be making decisions that affect you.
How did your clients do in the last down market?
Everyone is a genius in a bull market. You also want your advisor to be able to protect you in down markets.
Can you describe your investing approach?
Does the firm rely on one or two “stars,” or is the approach institutionalized and reliably reproducible over many years?
Are you sensitive to taxes when investing?
Some advisors don’t care, but one who takes a holistic approach will help you keep more of what you make.
What do you invest in?
Is it mutual funds, ETFs, individual securities, alternatives, or all of these? You want a firm that offers the most choices and flexibility.
What kinds of reports will I receive, and how often?
Make sure you get monthly reports from the custodian, and at least quarterly reports form the advisor, showing portfolio holdings, transactions, tax impact, and performance.
What is your client-to-employee ratio?
If close personal attention is what you want, a firm with a ratio of 25-to-1 or less is more likely to satisfy you than one where the ratio is over 100-to-1.
Don’t be embarrassed by the idea of asking so many questions. It’s your money. The best advisors will welcome these questions because they’ll be proud to answer them.
Jerry Miccolis, CFP®, CFA®, is a co-owner of Brinton Eaton Wealth Advisors, full-service, fee-only wealth management firm, and is coauthor of the book Asset Allocation For Dummies®.