How to Choose an Advisor
Advisor’s Duties to Clients
If you’re seeking financial planning and investment advice, you should be confident that your advisor shares your best interests. The investment advisory industry is saturated with conflicts of interest driven primarily by product sales. Advisors with a fiduciary duty to clients may still have conflicts of interest if they receive product-based compensation. As such, we respectfully recommend that you seek the advice of a fee-only fiduciary. A fee-only fiduciary (such as Envision) offers truly unbiased investment advice, free of product-related conflicts.
Advisory Fees & Investment Expenses
Generally, investors incur two levels of fees, one for advisory services and one for investment products. Expenses are a drag on investment returns, so any investor seeking the services of an advisor should inquire about your “all-in” fees (e.g. advisory fees, product expenses, transaction costs). You may wish to avoid high-priced advisors and products, since high expenses directly impact your bottom line.
Advisor’s Background & Credentials
Investment advisors come in many shapes and forms with many different licenses and an alphabet soup of credentials. There are important differences between required licenses (e.g. Series 65, Series 6, Series 7), certifications such as an IRS enrolled agent, and professional designations such as Certified Financial Planning Practitioner (CFP®), Chartered Financial Analyst (CFA), and Certified Public Accountant (CPA). Professional designations such as these (CFP® certification, CFA, CPA) have rigorous education, testing, and ethics requirements that extend far beyond the requirements of basic licensing or other certifications. These designations are standards of excellence, and advisors that have attained these designations have demonstrated technical expertise as well as ethics. Educational experience is also important, preferably a degree in finance or accounting, or a graduate degree such as an MBA or Master’s. Beyond investing, inquire as to the advisory firm’s in-house capabilities to advise in other areas such as income and estate tax planning and retirement planning. Make sure that you hire a professional and an advisory firm with the breadth and depth of expertise to meet your needs.
Advisor’s Client Service & Workload
It's important to understand your advisor’s workload and capacity to serve you and respond to your needs as well as monitor your accounts. You should understand their approach to serving clients, including frequency of monitoring, portfolio review, and meeting cadence to keep you informed and provide ongoing advice and guidance. Additionally, you should inquire as to how many clients they serve and who will be your primary contacts. Some advisors carry heavy account loads, which may inhibit their ability to be proactive or responsive to you as a client. Setting expectations up-front contributes to a more productive and successful advisory relationship.
Transparency in Reporting
In order to evaluate the performance of your investments, you need to understand how your investments are performing NET of all expenses. As such, you should inquire as to the frequency and format of investment performance reporting.
Disciplinary History
It would be prudent to inquire if a prospective advisor has any history of discipline by the SEC or a state regulator. Be aware of any potential issues that have occurred in the past to protect yourself as you decide on partnering with the right advisor for your needs.