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Robert Warner

Key Factors in Choosing the Right Investment Advisor

Finding an investment advisor who is right for you is a critical financial decision, and it can be complicated. There are many variables that should be considered. By focusing on four critical areas – people, philosophy, process and price – you can identify an advisor suited to your needs that can help you achieve your desired investment results and retirement goals.

Working with a financial advisor can provide significant benefits, as detailed in the 2015 Planning and Progress Study by Northwestern Mutual. According to the study, U.S. adults who work with advisors are more likely to be savers, hold less debt and have a diversified portfolio of financial solutions. They are also almost twice as likely to feel “very financially secure” (68% vs 35%).

PEOPLE

Selecting a financial advisor has parallels to choosing a doctor. Trust is key, and may be the most important factor. You’ll also want someone who understands your needs and has the means and capabilities to execute your financial plan.

Don’t underestimate the importance of meeting your prospective advisor in person. You are going to share valuable, personal information with your advisor and it is critical you trust him or her. An in person meeting is one of the best ways to evaluate the chemistry between you and your potential advisor. If that’s not practical because you are in different locations, consider a Skype or Facetime meeting to help you learn more about the advisor and determine whether he or she would be a good match for you.

Important issues to consider:

  • An advisor’s knowledge and experience both in years and types of clients, as well as services offered.
  • An advisor’s professional credentials. Three industry credentials that have strict education and ethics requirements are: Certified Financial Planner® (CFP®), Chartered Financial Analyst (CFA®) and Chartered Financial Consultant (ChFC).
  • An advisor’s background. Ideally, your advisor has experience in advising pilots and their families and is familiar with your airline’s retirement benefits.

In addition to asking about an advisor’s qualifications, you’ll want to know about the other professionals who will provide service and support for you. The quality of the support team can be critical and it is important to know if they will be available and accessible when needed.

PHILOSOPHY

There is no “one size fits all” method of investment management and financial planning, so it’s important to understand—and be comfortable with—your advisor’s planning and investment philosophy. Seek to learn about an advisor’s approach to selecting investments and controlling risks.

Additional factors to consider:

  • Will your advisor base their advice on asset allocation or market timing?
  • How will your advisor select your investments?
  • Will your advisor manage fixed-income (bond) portfolios? Including bonds in your portfolio can help balance the volatility of equity holdings, and may provide retirement income.

PROCESS

The right advisor will have a documented, repeatable process. Knowing the process behind how your financial plan will be developed and how your assets will be invested can help build your trust in an advisor.

Important things to learn about include:

  • What process will your advisor use to create your financial plan, invest your money and track and report on results?
  • Will your advisor provide income planning and optimize tax outcomes?
  • Does the advisor have a demonstrated track record?
  • Will your advisor use some sort of software to perform simulation analysis to determine your plan’s probability of success? Monte Carlo is one example of a popular program used by advisors. It estimates the probability your investments will achieve your goals by projecting future results based on comprehensive historical returns.

PRICE

Last, but certainly not least is price. Fees and expenses can have a dramatic effect on investment performance over time, so it’s critical you understand all of an advisor’s costs when selecting an advisor. You should ask an advisor how he or she is paid. If it’s through a fee, you should ask what it is, how it’s calculated and whether there are any additional fees or transaction costs. Also ask whether the advisor uses “best price” execution for trades.

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Views and comments expressed in this blog are those of the author and do not necessarily represent the positions of Cleary Gull or fellow Cleary Gull associates.