Top 10 Principles to Follow When Choosing a Financial Advisor
These ten principles should be a top priority when thinking about hiring a financial advisor or when reviewing your current financial advisor. Your financial future depends on it! 10. Practice What They Preach:
Do they practice what they preach? Do they invest their personal assets based on the same set of investment principals, using the same or comparable securities that they recommend their clients? This seems like a no-brainer to us at Siena. Advisors should never recommend strategies that they wouldn't take on for themselves or their family. Period.
9. Provide a Team for Each Client:
Having a team of experienced professionals highly benefits each client. Ideally, the professional team should consist of professionals with extensive experience and education in all areas affecting your finances. Advisors with experience in wealth management, portfolio and fixed income advising, taxes, estate planning, and law help clients understand their entire financial situation and can help them make better decisions. A quick tip on how to spot advisors with the above experience; look for advisors with the following designations or combination of the following designations: CPA, CPA/PFS, JD, MBA, CFA, MS, PhD, etc.
8. Delivers Attentive, Individualized Service
Your financial health should not be thrown into a general cookie cutter design meant for a vast majority of clients. A trusted advisor should provide a high level of personal attention and involve appropriate advice and service based on each clients individual situations.
Making a point to get to know you and your family is very important!
7. Build Customized, Integrated Financial Plans
Your financial plan shouldn't stop at your investment portfolio, but incorporate all areas of your financial plan. This includes integrating a unique investment strategy based on your individual willingness, ability, and need to accept market risk with your estate, tax, and risk management plans. A trusted advisor doesn't stop at money management like most, they understand the importance and interconnection of all of the above areas.
6. Achieve Goals Through Strategic Advice
Formulating your family's financial plan starts with your individual goals. Whether it's saving for retirement, giving to charity, or passing assets to your descendants, your goals should ultimately drive all advice given. More importantly, goals change. Your advisors should routinely evaluate and make recommendations based on the current situation, whether your goals are imminent or long-term.
5. Fee Structure Aligned with Client's Best Interest
Most investors don't fully understand how their current advisor is actually paid. Key words to look for are fee-based and the claim that the fund family pays their salary. This is an indicator that your advisor receives commissions. Commissions create conflicts of interest. We believe a fee-only investment management service model is the ideal way to handle your advisor's fee. Fee-only means fees are based on a percentage of assets managed for each client. When the market's doing well and the financial plan is going well, you make more and they make more. During the inevitable down periods such as 2008, you make less and they make less. This is an alignment of interest.
4. Utilizes Academic Research
It's easy to fall into the noise created by Wall Street media. Your financial future should not be based on the latest craze or hot stock tip. Our view is that all advice should be based on peer-reviewed academic research. Academic research is the evidence that should drive your investment decisions. Building a globally diversified portfolio according to the tenants of Modern Portfolio Theory for example. Coupled with the tax experience from a professional team, the academic research also assists with appropriate asset location between taxable and tax-advantaged accounts.
3. Full Disclosure and Transparent Costs
Do you know how your current advisor gets paid? Hidden fees and commissions create conflicts of interest. In our opinion, the fee structure should be aligned with your best interest; fully disclosed and explained. Not only is a fee-only fiduciary investment advisor required by law to act in your best interest, but they also will not be driven by commissions from selling products. Eliminating conflicts of interest gives you peace of mind that your advisor is looking out for your goals and financial success.
So what are the hidden costs of investing? We've broken down the most common costs you don't know you're paying here.
2. Focuses on Professional Advice, Not on Products
We believe an advisor should be client-centric, meaning that your advisor's focus is on delivering you sound advice and targeted solutions; not products driven by commissions. In addition, all advice provided should be in plain English at whatever level of detail you desire.
1. Acts in the Best Interest of Their Clients
Does your current advisor or prospective advisor provide advice and recommendations that are in their client's best interest (a.k.a. your family)? The traditional broker/dealer investment advisor operates on the suitability standard. This mean recommending products and giving advice that are suitable to your needs, not necessarily your best interests first. President Obama has even voiced his concerns with broker's, and is calling for rules requiring them to place their client's best interests first.
Registered Investment Advisors must follow a fiduciary standard of care pursuant to the Investment Advisors Act of 1940. The fiduciary standard is often referred to as the highest legal duty of care for a client's welfare, and it is much more stringent than the suitability standard. If President Obama's proposed reforms for brokers go into affect, all brokers would drop the suitability standard and adopt the fiduciary standard. See a more detailed comparison of RIAs vs. brokers here.
We believe the most trusted advisors are fee-only fiduciary registered investment advisors who adhere to all 10 principles listed above. After all your financial well-being is one of the most important aspects of you and your families lives. You should be confident in your advisor.