How to Find a Wealth Advisor You Can Trust, Part 1

Getting to know prospective advisors

Figuring out how to find a wealth advisor you can trust is a major step in setting yourself up for long-term financial success and creating peace of mind. Trust and value go hand in hand. With a trustworthy personal wealth  advisor on your side, you should be better prepared to make well-informed decisions and manage your wealth successfully throughout every stage of life.

A recent CFA Institute survey revealed that the more educated an investor is, the more likely they are to trust their wealth advisor.¹ This makes sense because humans inherently tend to fear what they don’t know. While trust is earned over time, you still need to find a wealth advisor you can trust today.

In this first blog of a two-part series, we provide you with five topics to discuss with a prospective advisor, plus tips on learning to understand an advisor’s investment philosophy.

Ask about these important topics

You may want to raise the following topics with a wealth advisor you’re considering. If the advisor can answer your questions clearly, and you feel comfortable with their answers and communication style, you might be off to a good start. Of course, feel free to ask other questions that are important to you.

Fee schedule: A trustworthy advisor should be transparent about how they charge for any given financial service, as well as any other related fees a client may be expected to pay. Although there are typical wealth advisor fees associated with the pay structure, read the fine print of any agreement to screen for additional underlying charges that aren’t clearly stated.

Services included: Check for additional fees or costs for extra services. When interviewing advisors, you’ll likely want to know what to expect before moving forward.

Advisor certifications: Ask what type of professional certifications the advisor has earned. While there are other credentials, two distinguished designations you’ll likely see are CERTIFIED FINANCIAL PLANNER™ and Chartered Financial Analyst®. Not only will an advisor undergo rigorous education and have relevant industry experience, but they’ll also need ongoing industry training and related learning to maintain these designations.

Referrals: As you build a wealth management plan, you may need other professionals to help and offer advice, like an accountant or an attorney. Many wealth advisors offer recommendations for these additional professionals. Ensure that you understand whether or not the advisor is compensated for referrals. If so, this financial incentive may influence their recommendation.

Investment philosophy: A good wealth advisor likely has a clear-cut investment philosophy and trading strategy that they can explain to you. In our opinion, you should be wary of anyone who guarantees quick returns or can’t offer specific suggestions for your personal financial circumstances.

Finally, search for a wealth advisor who meets your unique needs. Some may have minimum balance requirements, for instance. Others may have expertise in specialized areas you need, like managing the sudden wealth from an inheritance or dealing with the complexities of executive compensation. It’s also valuable to establish a good rapport. Of course, you don’t have to become best friends, but your interactions and communication should feel open and comfortable.

Understand the investment philosophy

It’s good to have some background knowledge before asking about a wealth advisor’s investment philosophy. That way, you help yourself better understand the details behind what they’re telling you. Here’s a quick overview of six elements of investing that we believe should be part of every wealth advisor’s philosophy and some thoughts on each.

Goal setting: Your wealth advisor should use your personal goals as the starting point and overall guiding force behind any recommendation. That means you should have a conversation about the purpose of your wealth and what financial goals you hope to achieve at different milestones.

Avoid market timing: Trying to time the market with quick trades is rarely successful on an ongoing basis and may simply result in higher costs and lower long-term investment returns compared to a disciplined investment approach. When figuring out how to select the right advisor, we suggest avoiding those who include market timing as part of your financial plan.

Asset allocation: There’s no one-size-fits-all formula for allocating your portfolio among stocks, bonds and other assets. A trustworthy advisor should be upfront about that and make recommendations based on your specific financial objectives, investment time horizon and risk tolerance.

Rebalancing: Find out how frequently your portfolio is monitored and how often rebalancing occurs to reset the desired asset allocation. Your wealth advisor should be poised to help you avoid emotional trades and instead focus on making rational decisions based on a disciplined investment strategy.

Trading fees: Your wealth advisor should address ways to minimize portfolio costs. Ask about trading fees and expense ratios for recommended investments. In our view, a good advisor looks at the total cost of trading decisions in order to protect and grow your portfolio effectively over time.

Taxes: Paying taxes can significantly impact how much your portfolio earns. Be sure your advisor touches on tax-advantaged accounts and strategies like tax-loss harvesting. They can even help you create a plan for charitable giving if it makes sense based on your finances and personal values.

Read Part 2 of this series now: Fiduciaries and Getting Advisor Recommendations

¹ https://trust.cfainstitute.org/wp-content/uploads/2020/04/CFAI_TrustReport2020_EXEC-SUMMARY.pdf

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