Everything you need to know about choosing a wealth advisor – Robb Report
We may receive payments from affiliate links included in this content. Our affiliate partners do not influence our opinions or editorial analysis. To learn more, see our Advertiser Disclosure.
For an individual or a family with significant means, choosing a wealth advisor is a major undertaking which can have important consequences. Even among wealthy families, the needs of a client with a net worth of $ 30 million will be significantly different than a family with a net worth of, say, $ 5 million.
How, then, should a high net worth individual (HNWI) approach the important task of selecting a wealth advisor?
Personal references can help identify suitable candidates
The starting point for any research is to identify a suitable pool of candidates. Personal introductions and referrals are a rich source of intelligence across the board, but even more so in the HNW segment.
For a client with significant wealth, “it is imperative to seek out an advisor with a long history of working with equally wealthy clients,” says Linda Erickson of Erickson Advisors in Greensboro, North Carolina.
Friends whose personal circumstances are similar to yours can be a great source of referrals, as can other professionals you work with, such as a lawyer or CPA. Industry organizations such as the Certified Financial Planner (CFP) Standards Board and the Financial Planning Association (FPA) also offer directories of qualified professionals, but a personal recommendation from a trusted source is always preferable.
Related: Achieve your financial goals with Personal Capital’s private client wealth management advisory service
Refine the search
Once the search is limited to a short list of candidates, it’s time to consider the credentials. Viable applicants should hold respected qualifications such as CFP (Certified Financial Planner) or CFA (Chartered Financial Analyst) designation. Both qualifications have educational requirements, including passing rigorous industry exams.
“The CFP designation is a table stakes, but UHNW (ultra-wealthy) families need advisors with advanced credentials for post-CFP planning, such as the Certified Private Wealth Advisor (CPWA) or the Certified Investment Management Analyst (CIMA), which is reached by less than 3% of advisors, ”says Tom Geoghegan of Beacon Hill Private Wealth in Summit, New Jersey.
The next step in the verification process requires some research. You can do a background check to verify education and credentials. Visit the Financial Governing Body FINRA BrokerCheck website to ensure there are no regulatory violations or ongoing disciplinary action against your applicants.
Finally, every financial advisory firm with more than $ 25 million in assets under management must file a Form ADV with the Securities and Exchange Commission. This publicly available document contains detailed information about a business, including fee structure, assets under management and more. You will want to check this form to make sure what you have been told matches the financial situation of the business.
What questions should I ask potential advisors?
Once the candidate pool has been reduced to a few, it’s time to start meeting with candidates and delving into the details of how these advisors might work with you. Here are some of the most critical questions to ask.
What is your pricing structure?
This is one of the most important questions you can ask because the way a counselor is paid has a big impact on your relationship. There are many compensation models, but some can create a conflict of interest. An advisor to a company that offers their own financial products might be prompted to recommend those products if they receive a commission, regardless of whether those products are the best options for you.
Outside of commissions, advisers may be remunerated by a flat fee, a percentage of assets under management, or both. Knowing how your wealth advisor is paid can help you determine when their recommendations are intended to improve their results or yours.
Are you a trustee?
A trustee is legally bound to act in the best interest of the client. Financial advisers who are trustees are required to choose only those investments that are the best option for their clients. A Registered Investment Advisor (RIA) is legally required to act as a trustee. In addition, holders of CFP and CFA titles are required by their association’s code of ethics to act in the best interest of the client.
Do you (or your company) have liability insurance?
If there is an error, is there a mechanism in place to ensure that the customer is reimbursed?
What resources can your business provide to manage important assets?
UHNW clients in particular have extremely complex needs and typically require more than just investment advice. Are there in-house legal and tax experts? Does the firm offer all the services the client might need? If not, will they work with an outside team?
How will we work together?
HNW and UHNW customers have unique needs and demand a high level of service. What is the firm’s process when working with clients of this caliber?
What is your investment philosophy?
This is one of the most fundamental and essential questions. The advisor must have a vision of investing and managing a considerable wealth in harmony with your own.
These are just a few of the key questions in finding counselors. During the interview process, you will dive into the details of your financial situation. When the strengths discussed are considerable, it makes sense to ask applicants for a written proposal that details a tailor-made plan to meet your individual needs.
At the end of the day, chemistry matters too
Choosing a wealth advisor is a deeply personal decision. A wealth advisor knows the intimate details of not only your finances, but also your family and personal life. Talking about money is one of the most intimate conversations in our culture. Therefore, mutual respect and personal relationships are key considerations. With careful consideration and a successful choice, you can build a relationship of trust that will benefit your family for years to come.
Rebecca Baldridge, CFA, is an investment professional and financial writer with over 20 years of experience in the financial services industry. She is a founding partner of Quartet Communications, a financial communications and content creation company.