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Curiously, when choosing a Financial Adviser, there is one big criterion to deemphasize and a dozen more important criteria to focus upon.  A Four-Step Guide:

Step One: Deemphasize Performance.

  • Selecting a Financial Adviser by their purported investment performance is like judging a book by its cover.
  • Beware of Financial managers who quickly state their returns and try to close the deal. Its very easy for Advisors to favorably manipulate their returns.
  • There is no one standard for multi-account investment managers to report investment returns, and as a result, there are a number of ways a manager may unfairly manipulate their performance.

Step Two: Initially its better to screen for factual and behavioral attributes such as the Advisor’s Fiduciary status, their disciplinary record, and their experience.

  • Check to see whether they are licensed securities brokers, insurance brokers, bankers or Registered Investment Advisors
  • Go to https://brokercheck.finra.org/check to check on the investment manager’s complaint and disciplinary record 
  • Review their ADV Part 2 if they are a Registered Investment Advisor, otherwise ask for their resume.
  • The candidate’s Fiduciary status should be a primary consideration.
  • Is the advisor an SEC sanctioned Fiduciary?  Only Fiduciaries are required to exclusively act in your best interests and disclose any conflicts.
  • Is the Advisor also NAPFA sanctioned Fee-Only Fiduciary?  They will not accept commissions that may influence their advice to you.

Step Three: Qualitative Screens for Compatibility.

  • You are entering a potentially long-term relationship. Make sure that you are compatible.  
  • Focus on the Advisor’s empathy and understanding of you and your objectives.
  • Are you comfortable with the way your advisor communicates? 
  • Assess the cohesiveness and long-term viability of the firm. 
  • Does the firm operate as a one-man-band or a team of peers?  Are at least two professionals working on your account?  
  • A relationship may last decades.  Will your advisor be there in 20 years?  Does the firm have an orderly perpetuation plan in place?

Step Four:  Assess the Adviser’s claims of Investment Performance 

  • There are many ways for an adviser to calculate returns; Don’t blindly accept the adviser’s returns.
  • Question their calculations including:
  1. The use of objective third-party calculating software
  2. Ask if the returns based on the adviser’s entire portfolios or were the returns quoted simply cherry picked from a specific client who had high returns?
  3. Are all fees included?

Good luck with your due-diligence!  If you have questions please contact Thomas.Saunders@winthropPartners.com or call 267-454-4585.