Choosing the Right Advisor

Prepare. Interview. Choose.

To choose an advisor you feel comfortable with – both personally and professionally – it’s smart to take your time, talk face to face, and ask the right questions to help you make an informed choice.

How do I choose the right advisor?
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“The difference is approach”

Questions to ask yourself.

Whether you’re starting with a list of recommended advisors or you have a specific advisor in mind, starting with the three questions located in the tabs below can help you make a thoughtful choice.

What are my goals and preferences?

Consider these Factors: risk tolerance, time horizon, income, taxes, and holdings.

Being able to clearly articulate your needs and expectations will help you and the advisors you talk with make an informed decision about whether you’re right for each other. If you are an individual investor, your advisor should understand your goals and your particular financial situation and make recommendations that are suitable for you. Some important factors to consider in defining your goals include:

  1. Investment Goals – What are you working toward: A comfortable retirement? Leaving a legacy? Philanthropic goals?
  2. Risk Tolerance – How much fluctuation in value can you tolerate in exchange for the opportunity to earn above-average returns?
  3. Time Horizon – When will you need to withdraw money from your investments?
  4. Income Needs – Do you need current income from your portfolio? How much?
  5. Tax Situation – Does your tax bracket require a tax-sensitive strategy?
  6. Other Holdings – Do you have significant wealth tied up in real estate or other illiquid assets?
  7. Other Needs – Do you have complex planning needs related to wealth transfer, executive compensation, risk management, business succession planning, or philanthropic planning?

What investment services do I need?

Consider what level of investment and advisory services you need. For example, some advisors provide clients with a pure investment management relationship while other advisors provide clients with sophisticated financial planning and advisory services in addition to investment management services.

Investing
  • Portfolio analysis
  • Portfolio design
  • Discretionary portfolio
    management
  • Ongoing investment
    advice
Cash management
  • Budgeting
  • Retirement income
Planning
  • Retirement
  • Education funding
  • Business succession
  • Charitable giving
  • Personal and business lending
  • Wealth transfers
  • Trusts and estate plans
  • Insurance review

What is my preferred communication style?

You should also consider the nature of the client relationship that you would like with an investment advisor, including the frequency, level, and form of communication you would like to maintain with the advisor. How often would you like to communicate with your advisor? Would you like to communicate only by phone and email, or would you prefer to discuss your investments in person?

Interview questions to ask advisors.

As you begin to talk with advisors, you’ll want to evaluate them objectively. Asking each advisor a consistent set of questions will help ensure that you have the information you need to make a good comparison.

An advisor’s professional designations can tell you a great deal about his or her education and areas of expertise.

  • CFP® (Certified Financial Planner™)

    CFP professionals have completed university-level financial planning coursework and passed a 10-hour exam covering nearly 90 topics, from group medical insurance to derivatives. More information >

  • CFA® (Chartered Financial Analyst®)

    CFAs must pass three exams, each of which demands a minimum of 250 hours of study and includes corporate finance and financial statements. More information >

  • PFS (Personal Financial Specialist)

    Personal financial specialists are certified public accountants who specialize in personal financial planning. The credential requires a detailed exam and significant financial planning expertise. More information >

  • CIMA® (Certified Investment Management Analyst®)

    CIMAs focus on asset allocation and typically complete final coursework at the Haas School of Business at the University of California, Berkeley, or at the University of Pennsylvania's Wharton School of Business. More information >

Suggestion - Visit the website of the organization that issued an advisor’s credential to verify that the advisor is a member in good standing and to learn about the requirements for certification.

Common credentials - This is not a complete list of certifications. There is no implied endorsement of one certification over another. Professional designations attained by an advisor do not guarantee a profit or protect against loss in periods of declining values.

Investment advisory practices vary widely in the services they provide. In general, they fall into one or a combination of the categories listed below.

  • Money managers

    If you need someone to manage your portfolio and do your investing, consider money managers. They:

    • Design investment portfolios, generally consisting of stocks, bonds, and other individual securities.
    • Often manage the portfolio on a discretionary basis, meaning that you authorize the advisor to trade on your behalf without the need for advance approval from you.
    • May not offer general financial planning services.
  • Financial planners

    If you need someone to review your situation and help with big-picture planning, consider financial planners. They:

    • Help you look to the future and do long-term financial planning in the areas of retirement, college funding, wealth transfer, tax planning, and insurance.
    • May not offer investing and portfolio management services.
  • Wealth managers

    If you need an advisor who can handle both your investing and planning needs, consider wealth managers. They:

    • Provide highly personalized, comprehensive financial planning as well as investment and portfolio management for high-net-worth clients.
    • Coordinate with other professional advisors, such as attorneys and accountants, to serve more complex financial needs, which may include tax minimization, trust management, wealth transfers, real estate management, and portfolio performance analytics.

Knowing how your advisor is compensated may help you evaluate the relative objectivity of the recommendations you receive. Independent advisors generally work on a fee-only or fee-plus-commissions basis.

Types of compensation and what they mean to you:

  • Fee only

    Asset-based, hourly, or flat fees: Many independent advisors charge a percentage of the assets they manage for you (typically 1%–2%). This compensation method gives your advisor an incentive to help grow your assets. Hourly or flat fees are often associated with a specific, one-time service (e.g., developing a financial plan). The fee may vary by account size and service. In addition to these fees, you may pay commissions and/or other fees for execution of the trades your advisor makes and for custody of your assets.

  • Fee plus commissions

    Along with an advisory or financial planning fee, some advisors may receive a portion of the commissions you pay when you buy or sell certain financial products the advisor recommends, such as insurance policies or annuities.

  • Commissions only

    Advisors sometimes receive compensation only from sales commissions on the investments they buy and sell for you.

  • Wrap fees

    Sometimes advisors charge a wrap fee, which is typically a single asset-based fee for the advice they provide and the execution of the trades they make.

Good communication between you and your advisor is essential. Asking the questions below can help you judge the amount of attention and regular communication you can expect.

What to ask:

  • With whom will I work?

    In some cases, the firm’s principal may conduct your initial meeting and then turn your portfolio over to an associate or a team that actually manages it. If personal rapport is important to you, ask to meet with the people you’ll be working with.

  • How often will we communicate?

    Regular contact helps ensure that you and your advisor are clear about your financial goals, risk tolerance, and investment strategy. Typically, your advisor meets you in person at least annually – and stays in touch more frequently by phone and email.

  • How will you report performance?

    At a minimum, you should expect to receive:

    • Account statements from the advisor or custodian/brokerage firm where your assets are held.
    • Quarterly summaries of year-to-date investment performance.
    • A comprehensive annual performance report from your advisor.
  • What is the size of your firm?

    A firm’s size – including the number of employees, the assets under management, and the average portfolio size – can have a bearing on the quality of service you receive.

    • Large firms may have more resources – an important consideration if your needs call for specialized services. Small firms may offer more personalized attention.
    • The average portfolio size of the advisor’s other clients helps you understand your potential fit with the firm.

Things to consider:

  • Performance
    • Ask to see portfolio performance numbers for up and down markets1.
    • Ask the advisor to compare the performance with relevant benchmarks, such as the S&P 500® Index2, during the same time period.
    • An advisor should at least meet – and preferably beat – the benchmark.
  • Investment style
    • Advisors may specialize in certain types of investments (such as mutual funds, stocks, or bonds) and styles (such as growth or value).
    • You can assess whether the advisor's methodology or style aligns with your objectives.
    • Asking about an advisor's investment style is a good way to make sure that the advisor can explain his or her approach clearly and in a way that you understand.
  • Decision-making
    • Advisors who have a disciplined approach to decision-making may be more likely to stay focused on your long-term goals.
    • Many advisors use an asset allocation strategy that has a history of success over time. Your strategy should be based on your goals, time horizon, and comfort with risk.
    • Knowing how often an advisor adjusts portfolios can indicate whether the advisor uses a strategic, long-term approach or invests in short-term trends.

Independent financial advisors typically use independent custodians – generally brokerage firms or banks – to hold and safeguard their clients’ stocks, mutual funds, and other assets.

Why should you ask this question?

You want to be confident that your advisor has chosen a custodian that meets or exceeds the security measures required by industry regulators to help protect your assets.

  • Look for a custodian with important services, such as trade execution and preparation of monthly brokerage statements, which allow your advisor to concentrate on managing your portfolio.
  • Ask about the custodian’s policies to help protect personal and financial information from unauthorized activity.

Preliminary screening.

You can review pertinent information about an advisor even before you meet

All independent advisors are required to publicly disclose details about their business by filing a Form ADV. You can review the Form ADVs on the SEC website at www.adviserinfo.sec.gov.

Form ADV, Part 1 describes the advisor’s business, ownership, clients, employees, business practices, affiliations, and disciplinary history.

Form ADV, Part 2 is a narrative brochure that describes in plain English the advisor’s services, fee schedule, disciplinary information, conflicts of interest, and the educational and business background of management and key advisory personnel. Advisors are required to give you this information before you hire them.