How To Select And Evaluate The Effectiveness of Your Financial Advisor

7 must-ask questions in the process

Selecting the best financial advisor for you and your family is and should be a serious process. Remember, when you hire an advisor, you’re handing someone an enormous and important responsibility –- the asset management and wealth management strategies for you and your family in the near and long term. He or she should come to know your financial situation better than anyone else in your life. Choosing the right person may not guarantee your financial success or the success of your family but choosing the wrong one could prove catastrophic.

Before hiring an advisor, this person or the firm should be made to answer some tough questions. This at times can be uncomfortable for you as the client. However, you should think of yourself as the CEO of family affairs and you need to think like the big boss and make an important high-level decision to hire your “family office”. If when you do the interviews, the advisor can’t give straightforward and credible answers to your tough and direct questions, then they don’t have the right stuff for the job.  Bottom line, be rigorous in the interview process and it will save you a lot of pain down the road.

Here are seven must-ask questions we suggest you pose when selecting and evaluating a financial advisor, and we’re basing this advice on a must-read book called Get Wise to Your Advisor: How to Reach Your Investment Goals Without Getting Ripped Off by Steven D. Lockshin.

#1 Can you describe your typical client?  Can you talk about the unique expertise or specific focus that you have with certain types of clients?  What’s the average account size and median account size?  What are your total assets under management? What are your total assets under advisement and how many clients do you have?

#2 Can you describe your service profile? What’s the menu of services that you offer in addition to asset wealth management and wealth management strategies? Tell me about the technology interface between you and us as your client. How many times per year will you meet with us? If special circumstances arise, will you meet with us more often? How many advisors does your firm have and what kind of team structure do you have behind the advisor to meet our needs?

#3 What licenses do you carry?  At Lenox Wealth, we have a heavy bias to being a registered investment adviser, and think you should ask someone whether they have broker's licenses or if they're registered as an investment advisor. It’s also important to ask them if they're held to a fiduciary standard. And, ask what process and procedures they have to ensure their firm remains in compliance with important legal and regulatory statutes.  IMPORTANT:  Registered Investment Advisors are legally bound to serve as fiduciaries by putting client interests first.

#4 How do you get paid? Do you get paid for the investments that you recommend? Do some investments you recommend pay you more than others? Are you paid with commissions? Are there any other forms of compensation that I should know about? Does your firm receive any payments in the form of compensation from mutual funds or other investment companies? Can I pay you a flat annual fee? Can we agree on the dollar amount in advance? Do you manage any client assets for yourself? Is there any case where you charge clients a wealth management fee or other kinds of fees aside from what I pay you? What other costs might I incur?

#5 Can you explain your investment process in plain English?  How does your investment management process work? What wealth management strategies do you abide by?  Why?  What do you take into consideration when providing financial guidance?  How closely do you look at what’s important to my family and me on a personal level when giving advice?

#6 Where will my assets be custodied? Who could move money in and out of my account? How will my accounts be titled? What level of liability insurance do you have? How do you monitor your employee's ethical conduct? Have you ever had to fire an employee for ethical conduct?

#7 Can you tell me more about your firm and the qualifications of financial advisors on staff? Do you require certain accreditations such as a CFP? Do the people with whom I’ll work have business majors or advanced degrees in business? What is the financial background of staff members? What does your firm do to plan for the future and what direction will it head over the next several years?  What safeguards does your firm have in place to ensure that my assets are protected from fraud or theft?  Can you provide a list of your credentials and background?

After the interview, we suggest that you calmly reflect. If possible, make sure that you interview at least three potential advisors, and do a cross check of the advisors’ answers. Get very comfortable with whom you think you should pick; don’t give in to pressure or rush your decision. And, if you have any questions, please feel free to call us at Lenox. We’d be glad to walk you through these questions and help you create a personalized checklist that will help you make the best decision for you and your family.

It’s your tomorrow. Call us for a complimentary 1-hour review - 513.618.7080 or contact us online.

Important Disclosure:  This material presented by Lenox Wealth is for informational purposes only.  It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy or investment product. Investments in securities and other investment products entail risk, including the risk of loss.