5 Steps to Finding and Retaining the Right Advisor

Have you been through a financial event like a divorce, IPO, sale of a business, or inheritance? Chances are, these emotionally-charged circumstances have left you feeling like you need a roadmap for your financial future, or the help of a financial advisor or advisory firm.

When most investors think about how their money is managed, they often cite investment performance as the most important factor. However, a study by JD Power suggests that the quality of the relationship with the financial advisor or advisory firm is just as important. Investors value collaboration with their advisory firm, communication and trust[fusion_builder_container hundred_percent=”yes” overflow=”visible”][fusion_builder_row][fusion_builder_column type=”1_1″ background_position=”left top” background_color=”” border_size=”” border_color=”” border_style=”solid” spacing=”yes” background_image=”” background_repeat=”no-repeat” padding=”” margin_top=”0px” margin_bottom=”0px” class=”” id=”” animation_type=”” animation_speed=”0.3″ animation_direction=”left” hide_on_mobile=”no” center_content=”no” min_height=”none”][1].

With this in mind, finding the right financial advisor for you and your family can be a time consuming process. By following these tips below, you can find an advisor that is competent, trustworthy, and fulfills your unique long-term goals and objectives.


Research the advisor

There are a few ways to research an advisor or advisory firm. The simplest way is to perform a google search where you can find the website, and any news related to the advisor or firm. It will give you insight into which publications they contribute to, charitable and event involvement, and any negative publicity or disciplinary action. Additionally, you can search for an advisor’s form ADV through the Securities and Exchange Commission (SEC). The form ADV is a required annual submission to the SEC by a professional investment advisory firm managing over $25 million that states the investment style, assets under management and key officers of the firm. Here is a link to Callan Capital’s most recent form ADV. Former and current brokers can be researched through FINRA’s broker check program.

Ask friends, family and colleagues for recommendations

In the financial advisory business, existing client referrals are important. Often times, your friends, family and colleagues have insight into your personal circumstances and may be able to match you with a financial advisor with whom they work. For example, if you work at a company going through an acquisition and your colleague works with an advisor who specializes in financial planning surrounding this circumstance, the advisor may be better equipped to help than another advisor who does not specialize in that type of circumstance or niche clientele. Before signing on with an advisor, ask to speak with an existing client regarding their services for an unbiased opinion. Additionally, ask for a sample financial plan, sample investment portfolio, and a breakdown of any and all fees.

Credentials matter

There are many credentials available to financial advisors, yet we feel that there are a few that are more useful than others. The CFP designation (Certified Financial Planner) is designed for financial planning professionals who have completed extensive training and experience requirements, are held to rigorous ethical standards, understand all the complexities of the changing financial climate and will make recommendations in a client’s best interest. The designation is awarded to individuals who complete 18 to 24 months of study, pass a ten-hour exam, and work for three years as a financial planner or complete a two-year apprenticeship with a CFP professional before earning the designation.[2] The CPWA designation (Certified Private Wealth Advisor) is designed specifically for advisors committed to serving high net worth clients and is awarded to individuals who have completed coursework and examination with 40 hours of continuing information every two years. The CIMA designation (Certified Investment Management Analyst) is the only credential for advanced investment advisors and consultants and is awarded to individuals who complete a 5 step certification process and pass two exams. The CFA designation (Chartered Financial Analyst) is designed for active portfolio managers and analysts to bridge current practice, investment theory and ethical standards to provide investment analysis and portfolio management skills. The designation is awarded to individuals who pass three six-hour exams and have four years of qualifying work experience to earn the title. The CFA exam has a pass rate of between 30% and 50%, signifying that is a rigorous and hard test to pass.

Ask questions about performance numbers 

Though performance is an important factor in choosing an advisor, there are some things to remember when having the conversation.

In our opinion, many advisors in the industry will show ambiguous performance figures.  Often times, an existing portfolio will be “backtested” to show performance figures for several years. This may be inaccurate unless the advisor actually held the exact portfolio several years prior for their clients and the only trades placed were to rebalance back to the original allocation. For example, if an advisor adds Apple stock to their portfolio yesterday and replaces Hewlett Packard and a potential client asks for 5 year performance numbers of the portfolio, many advisors will show the portfolio as if it held Apple for 5 years. The disclaimer will likely highlight that the performance figures are a back test of the advisors current portfolio but not the real performance of actual clients.

It’s important to ask for a composite of actual client returns.  The composite will aggregate all clients in a specific strategy rather than just highlighting the best of the bunch.

Fiduciary vs. suitability standards

Registered Investment Advisors (RIAs) are held to a fiduciary standard, which means that they are legally bound to act in the best interest of their clients. RIAs must disclose any potential conflict and how they are compensated.

Brokers-dealers are held to a suitability standard, which means that they may or may not be acting in the best interest of their clients. A broker’s advice must be suitable for a client, but it may not be best for the client.

To illustrate this difference, consider a client who seeks to buy a mutual fund. A broker may recommend a mutual fund that gives them a larger commission, perhaps since they work for the company that manages that mutual fund. The mutual fund may or may not be in the best interest of the client. A financial advisor who is held to a fiduciary standard does not sell products, typically charges a transparent investment management fee, and is legally bound to recommend an investment that is always in the best interest of the client.

As mentioned, working with an advisor or advisory firm is a highly personal decision for you and your family. Especially during uncertain or anxious times, it is imperative to find an advisor that will provide clarity, direction and discipline as you make significant wealth decisions. By following these tips above, you can find an advisor that is knowledgeable, reliable, and helps you plan for the next chapter in your life.

[1] http://www.jdpower.com/press-releases/2013-us-full-service-investor-satisfaction-study

[2] http://www.kiplinger.com/article/investing/T023-C000-S002-must-have-credentials-for-a-financial-adviser.html

*For more information regarding the CFP designation, please refer to www.cfp.net/become-a-cfp-professional/cfp-certification-requirements. For more information regarding the CIMA designation, please refer to https://www.imca.org/cima. For more information regarding the CPWA designation, please refer to https://www.imca.org/certified-private-wealth-advisor-certification-program.[/fusion_builder_column][/fusion_builder_row][/fusion_builder_container]

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