There is no shortage of advice on the Internet that attempts to help individuals select a financial adviser, 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 recent years.
However, there seems to be a shortage of useful advice on how to select the best adviser 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:
Consider eliminating the wrong advisers. Professional financial advice seems to come from a dizzying array of sources. For example, are you using a "financial planner," a "financial adviser," a "wealth manager," or a "private wealth manager"? Instead of getting hung up on the title, what’s important is finding an adviser that begins any new client relationship with a process that revolves around financial planning.
If they don't do this, consider striking them from the list. These folks are typically transaction oriented and do not typically take a holistic view of your entire situation. In my opinion, they are not comprehensive practitioners.
It is impossible to determine what kind of adviser you are considering based on his or her title. Advisers 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.
Just a thought.
Consider eliminating the financial plans that are free. You will likely get what you pay for. Any adviser 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 can potentially serve as a conduit for product sales. Advisers lumping "goal analysis" into asset management fees are typically focused on product sales.
Consider eliminating advisers with frills. In general, the advice and products offered by some large firms are commoditized and distributed by a sales force. Successful advisers at these firms are faced with the necessity of differentiating themselves and their teams from, in some cases, thousands of other advisers affiliated with the same firm.
To do this, many advisers offer special client service facilities or concierge services. If an adviser or team needs to differentiate their financial advisery practice with special concierge services, this may potentially imply they are not focused enough on their planning or asset management skills.
Consider eliminating the advisers who outsource money management. I believe in an old axiom modified for my own use: "People who can't, don't." If an adviser outsources all of the money management to outside firms and does not manage any money himself, he is a middleman for the investment decision maker and is selling the ability to "pick the best managers" available. He may be also potentially 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 Planner practitioners (CFPs) who invest capital back into research, analysts, and technology. 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 help separate a devoted professional practitioner from someone potentially just 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 in-depth financial planning for a fee, managing assets on a discretionary basis, and investing back into things inside their practice 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 cofounder of Monument Wealth Management, a full-service wealth management firm in Alexandria, Va. Monument Wealth Management is backed by LPL Financial, an independent broker-dealer and Registered Investment Advisor. David has been named one of America's Top 100 Financial Advisors for two straight years by Registered Rep Magazine (2009 and 2010, based on assets under management) and has been interviewed by several national media sources over the past several years. Follow David and Monument Wealth Management on their blog Off The Wall, on Twitter at @MonumentWealth and @DavidBArmstrong, and on their Facebook page. Securities and financial planning offered through LPL Financial, Member FINRA/SIPC.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendation for any individual. All performance references are historical and are not a guarantee of future results.