Finding the Right Financial Advisor

One request we frequently receive from our clients is a referral for a post-divorce financial planner. When posed to a group of attorneys, each had “their guy” whom they felt was best suited for a client’s needs. While a personal reference is important and valued, we wanted to instead provide a guideline of questions to ask when choosing a potential advisor to hopefully lead you to find the right advisor for you.

Below is a guide to interviewing a post-divorce financial advisor, financial planner or private wealth manager:

We believe the single most important question to ask, before all else, is whether or not the potential advisor is bound to a fiduciary standard. A fiduciary standard was established as part of the Investment Advisors Act of 1940 which requires advisors to put their clients’ interests before their own.  If your potential advisor is not upheld by the fiduciary standard, their guidelines for investing your money must simply be considered suitable for your needs. In short, the advisor must only believe an investment is suitable for their client, but may still have their own interests ahead of their clients.

Once you’ve determined whether your advisor is or is not upheld by the fiduciary standard, we recommend investigating the following criteria to gain further confidence in your decision.

What credentials does he/she have? These are some of the hallmarks of competency and experience that should be sought after and some are considered as difficult to pass as the Bar. Many advisors consider practicing without them to be akin to practicing law without a license.

  • Certified Financial Planner (CFP)
  • Chartered Financial Analyst (CFA)
  • Certified Investment Management Analyst (CIMA)
  • Chartered Financial Consultant (ChFC)
  • Certified Public Accountant (CPA)

How much money does he/she directly oversee?

Who does he/she work for?

  • Bank
  • Investment/Brokerage Wire house (e.g. UBS, Morgan Stanley, Merrill Lynch)
  • Insurance company
  • Independent (Owns their own company)

Ask him/her to describe their typical or average client.

  • Average portfolio size?
  • Services Provided?
  • Source of their wealth?
  • Aversion to risk?

How is he/she compensated?

  • Commissions
  • Fee Based
  • Fee Only

What services does he/she provide beyond Investment Consulting?

  • Retirement Distribution Planning
  • Tax Planning
  • Estate Planning
  • Cash Flow and Debt Management

What is his/her investment philosophy?

Does his/her employer influence his/her investment decisions?

What kind of resources does he/she use to develop his/her investment philosophy?

  • Technical Analysis
  • Fundamental Research
  • In house research
  • The internet

Does he/she ACTIVELY manage the portfolio or do they take a PASSIVE approach?

How will he/she determine the make-up of an investment portfolio that meets with your goals for the funds?

  • Risk profiles
  • Goals
  • Time Horizons

What are his/her average returns over 1, 3 and 5 year time frames for a client similar to you?

Who would manage your relationship? Will the person across the table be making the investment decisions or will it be someone else in a different office?

How often would you meet to discuss your finances and review performance?

While there are certainly more questions to be asked, we feel that these questions will provide a strong base for choosing a financial advisor with confidence.