By Jerry Krause, Managing Member, Sensiba San Filippo Financial Advisors
It is difficult to be knowledgeable and effective in everything we do. A very wise client once told me, “Do what you do best, and pay someone else to do the rest. “ That advice was true decades ago and I believe still rings true today. Accordingly, as investors, most of us seek the counsel and assistance of qualified professionals in our financial matters. In many cases, those individuals are Investment Advisors.
On the surface, many Investment Advisors seem similar. They list similar services, have similar accreditations, and work in similar industries. But do they all deliver the same value? Is one Investment Advisor as good as the next? How can an investor tell if he or she is truly getting the greatest value from their service provider?
Being a truly valuable Investment Advisor requires more than just providing specific services or technical expertise. It requires taking the time to understand the full picture of the investor’s personal and financial situation. It means always doing the right thing for the client, and hopefully in doing so, providing that client with peace of mind. A strong and trusting relationship is the foundation for value-added delivery.
So what are the differentiating factors you should be looking for in a relationship with your Investment Advisor?
- Is your Investment Advisor a true “fiduciary”? A fiduciary is required to put your needs ahead of any others, providing you with advice and recommendations that are unbiased, conflict-free, and based solely on your individual needs. If your advisor is a Registered Investment Advisor (RIA), they are legally required to be a fiduciary. Keep in mind that many brokers and agents are not required to be a fiduciary and may not be required to put your interests first.
- How is your Investment Advisor compensated? Typically, RIA fees are based upon a percentage of your assets under their management, and the percentages can vary. Because RIAs do not generally earn anything when an investment is bought or sold and are incentivized to have client assets grow under their management, they are apt to be keenly focused on costs and utilization of lower cost investments. If financial planning is offered, a predetermined or hourly charge may be assessed for such services. A broker or agent advisor may have a different compensation structure.
- What is the scope of the services offered?
- An RIA and a broker/agent advisor will create and manage your investment portfolio. Best practice requires that the advisor have an initial meeting with you (and your spouse, if applicable) to learn about your overall financial position, family situation, goals and objectives, as well as past and current investment experiences before any specific investment recommendations are made. This should be a discussion built on an open and continuing dialogue to ensure your goals and the advisor’s advice are, and remain, in alignment.
- Financial planning may be offered; however, be wary of a planner who wants to create an excessively thick report projecting the next forty years with no regard to life’s inevitable changes. Financial planning is critical, and an affective plan should be nimble and flexible enough to address life’s changes and unforeseen opportunities or challenges. This can be addressed with interactive tools that allow you to view your investments in real time, manage spending, set goals to track progress toward financial objectives, as well as create “what if” scenarios around future financial decisions.
- Tax services may also be available. What better way to understand someone’s current financial and life situation than to actually generate their tax compliance documents? The process requires annual and ongoing interaction between you and the advisory firm and provides the opportunity for frequent, up-to-date information. In addition, this relationship should include an annual review of your estate and trust matters to ensure that your documents are in accordance with not only current tax laws, but also adhere to your current wishes and desires.
Aside from checking all of the above boxes, what would make your Investment Advisor a true “trusted advisor”? First and foremost, your trusted advisor should be looking out for you and your best interests. That means proactively identifying opportunities and avoiding potential mishaps. A trusted advisor should listen to their client’s concerns and be creative and proactive in finding solutions. In addition, as with any trusted friend or cohort, a trusted advisor must be willing to disagree with the client. A trusted advisor should feel confident in alerting their client of any potential mistakes or missteps — open communication is the key to ensuring the client is presented with a cohesive view of any situation.
Finding the perfect Investment Advisor for your needs can be a challenging feat. It will take some research and effort to find the right person with the right qualities. By utilizing the thoughts above, I hope you will succeed in establishing a long-term relationship with a “trusted” Investment Advisor and find financial peace of mind.
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