There is no shortage of advice on the Internet that attempts to help individuals select a financial advisor, but a lot of it is centered on weeding out the crooks. This is great information, and certainly relevant given the buffoonery uncovered over the past two years.
However, there seems to be a shortage of useful advice on how to select the best advisor once the clowns have been culled from the list. The real key is to separate the pros from the salespeople. Here are some tips from a practitioner.
Eliminate the wrong advisors. Professional financial advice comes from a dizzying array of sources (Are you using a "financial planner," a "financial advisor," a "wealth manager," or a "private wealth manager"?). The title matters less than finding an advisor that begins any new client relationship with a complete and comprehensive financial planning process. If they don't, strike them from the list. These folks are salespeople, not practitioners.
It's is impossible to determine what kind of advisor you are considering based on their title. They either create a plan for a client and base an appropriate investment strategy on that plan, or they are selling you products. Period. Choose wisely here and the rest becomes easier.
Eliminate the financial plans that are free. You will get what you pay for. Any advisor that offers "goal planning" for free, or claims that the analysis is included in the fee to manage your assets is most likely using the concept of planning as a tool to gather more assets. Be on the lookout for asset gathering tools used by firms offering to "assess your goals." These may simply be masquerades for real financial planning and serve as a conduit for product sales. Advisors lumping "goal analysis" into asset management fees are typically salespeople.
Eliminate advisors with frills. In general, the advice and products offered by large firms are commoditized and distributed by a sales force. Successful advisors at these firms are faced with the necessity of differentiating themselves and their teams from, in some cases, 16,000 other advisors affiliated with the same firm.
To do this, many advisors offer special client service facilities or concierge services. If an advisor or team needs to differentiate their financial advisory practice with special concierge services, what does that say about their planning or asset management skills? Not much.
Eliminate the advisors who outsource money management. I believe in an old axiom modified for my own use: "people who can't, don't." If an advisor outsources all of the money management to outside firms and does not manage any money themselves, he or she is a middleman to the real brains and is selling the ability to "pick the best managers" available, but is instead relying on what is likely a limited number of investment options dictated by a third party. This is a very difficult task at best.
Instead, look for teams that at least include some Chartered Financial Analyst charterholders (CFAs) and Certified Financial Planners Practitioners (CFPs) that invest capital back into research, analysts, technology, and other skilled players that facilitate the conduct of what they were hired to do in the first place. Find an experienced team that manages a sizable amount of money on a discretionary basis (meaning they call all the shots in the portfolio) on behalf of their clients. It's a good way to separate a devoted professional practitioner from someone selling his or her ability as a middleman.
Real professionals know that the value in their services resides in the advice they give, which will always result in fair compensation. Conducting complete and comprehensive financial planning for a fee, managing assets on a discretionary basis, and investing back into things that really matter are key differentiators to assess once you have eliminated the obvious choices from consideration.
David B. Armstrong CFA, is a Managing Director and co-founder of Monument Wealth Management in Alexandria VA, a full service Private Wealth Planning and wealth management firm. Monument Wealth Management is backed by LPL Financial, the independent broker-dealer and Registered Investment Advisor. He has been named one of America's Top 100 Financial Advisors for two straight years by Registered Rep Magazine (2009 & 2010) based on asset under management. David and Monument Wealth Management can be followed on their blog at "Off The Wall", their Twitter account @MonumentWealth, and on their Facebook page.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendation for individual. To determine which investment is appropriate please consult your financial advisor prior to investing. Securities and financial planning offered through LPL Financial, Member FINRA/SIPC.