How To Select An Advisor
The sooner you get started, the better off you’ll be.
Below are a few things to look for when selecting an advisor to assure you are as well informed as possible.
It’s your hard earned money, after all.
Kiplinger’s offers 6 steps to finding a great financial adviser. (December 2010)
Kiplinger’s Step 1: Align your interests by working with a fee-only adviser,
meaning one who does not accept commissions. All advisers have some conflicts of interest, but fee-only advisers have the fewest. (Note that “fee-based” advisers are different — they receive a blend of commissions and other fees.) You can find a fee-only adviser through the National Association of Personal Financial Advisors. Some fee-only advisers, as well as some brokers, charge a percentage of your assets (say, 1% to 2% a year) to manage your money on an ongoing basis. Others charge a fee, generally $100 to $300 per hour, to help you set up a financial plan or for periodic advice. If you have a one-time need for advice or you just want to keep a tight rein on costs, the latter may be the better option for you. You can find an hourly adviser through the Garrett Planning Network.
DPC: We are a fee-only adviser. We charge 1%.
Kiplinger’s Step 2: Learn the alphabet soup.
A Certified Financial Planner (CFP) is a generalist who should be able to help you with your whole financial picture. The Chartered Financial Analyst (CFA) designation indicates particular expertise in investing. A Certified Public Accountant (CPA) is a tax whiz. And a Chartered Financial Consultant (ChFC) has extensive training in insurance and estate planning.
DPC: Adam J. Gould, principal wealth and investment advisor for Dogpatch Capital is a Certified Financial Planner (CFP). Learn more about what it takes to become a Certified Financial Planner here.
Kiplinger’s Step 3: Be picky.
Get to know several candidates before settling on one. Personal chemistry matters, and there’s no point spending your money on advice from someone with whom you don’t feel at ease. Most advisers will give you a complimentary introductory session — in order to go over your needs, their process and what you can expect their services to cost — before you make a formal arrangement. Take advantage of these sessions. A good adviser should spend at least an hour learning about your full financial picture — including, for example, your goals, income needs, tax status and health, as well as the quality of your insurance coverage — before recommending any specific investments. It’s a red flag if he or she gives you a breathy spiel about some hot investment within the first five minutes of meeting you.
DPC: We could not agree more! An introductory meeting is a give-in and personal chemistry is a must. We are not in the business of selling anything, we are in the business of helping you sleep at night, knowing you have a trusted advisor looking out for your best interests. We are passionate about markets and personal finance so please excuse us if we tangent to a breathy spiel about some hot investment.
If, for whatever reason, it turns out we are not the right fit; we are happy to refer you to another competent and trustworthy professional who may better suit your needs.
Kiplinger’s Step 4: Ask the tough questions.
You want to get a complete picture of an adviser’s background, specific expertise, fees and investment philosophy. Feel free to ask for references to other clients. Before you sign a formal agreement, make sure you and your adviser understand exactly what services he or she will be providing and how long you expect your relationship to last. And stipulate whether you can get a full or partial refund if your relationship ends early.
DPC: References are available upon request. We provide a pro-rata refund of our management fee if the relationship ends early.
Kiplinger’s Step 5: Avoid another Madoff.
If you are looking for someone to manage your investments for you, invest with an adviser who uses a third-party custodian. Convicted swindler Bernard Madoff held client funds in his own custody, which is how he was able to drain clients’ savings and fudge their account statements. If your adviser uses an independent custodian, such as Charles Schwab or Scottrade, those institutions will take possession of your money and your account statements will come from their offices (rather than from your adviser’s).
DPC: All deposits/withdrawals are handled by- and accounts are custodied with TD Ameritrade. One of the reasons we chose TD Ameritrade as our custodian is their ability to link with- and easily transfer funds between same name accounts both internally and externally.
Kiplinger’s Step 6: Do a background check with regulators.
An adviser’s Form ADV will tell you if he or she has any closeted skeletons. If your adviser is also registered as a broker, you should check him or her out at www.finra.org/brokercheck. Finally, you can contact your state securities regulator and ask any professional organizations to which your adviser belongs (such as the CFP Board or the American Institute of CPAs) if he or she has a disciplinary history.
Barron’s recently published a guide to doing a thorough check before locking in an advisor. (August 23, 2014)
Barron’s Key Area 1: Advisor-to-client ratio.
DeHond, who serves very wealthy investors, keeps his ratio at 30-to-1 to provide enough attention to each client. A “retail” advisor, serving clients with under a few million dollars, should serve no more than 100 clients, he says.
DPC: As Dogpatch Capital grows, we are committed to maintaining the highest level quality of service and attention provided to each of its clients.
Barron’s Key Area 2: Experience.
Intelligent, committed advisors can be any age, but a little seasoning can be very reassuring. If an advisor has been through a few bear markets, she may do a better job of protecting your money when hard times hit.
DPC: Adam J. Gould, principal wealth and investment advisor for Dogpatch Capital has a grand appreciation for risk. Working at Lehman Brothers through the 2008-2009 financial crisis instilled a healthy level of skepticism for financial all products – even those considered to be cash equivalents. Adam has analyzed and traded billions in fixed income and managed businesses with hundreds of millions invested in stocks.
Barron’s Key Area 3: Compensation.
Some advisors are compensated through sales commissions, others through fees based on the amount of assets under management, and others through a combination of the two. Be prepared to ask hard questions about why the advisor’s compensation model is better for you than the alternatives.
DPC: We are a fee-only adviser. We charge 1%. As a fee-only advisor you will not see us recommend high commission proprietary products like new issue structured notes.
Barron’s Key Area 4: Career stage.
Advisors typically spend the first several years of their career building a client base, which may affect the amount of personal attention you’ll receive. You should leave an interview confident that you won’t get lost in the shuffle.
DPC: Adam J. Gould, principal wealth and investment advisor for Dogpatch Capital has been developing his client base since he started in the business in 2006. He is far along in his career and understand the importance of approachable and responsive client service.
Barron’s Key Area 5: Firm stability.
Because advisory firms compete with one another to recruit successful brokers, some advisors make a career of jumping from firm to firm. You may want to avoid advisors who can’t stay put, says DeHond, adding, “Clients hate that kind of instability.”
DPC: We are committed to providing independent, objective, unrestricted advice. We believe the only way to do that is to operate as an independent RIA.