If you’re looking for someone to advise you on your financial affairs, you should commit serious time and care to find the person and firm that are right for you.
A successful advisory relationship can thrive across generations. Advisers who are worth working with will welcome your due diligence. Those who have performed the necessary work to structure solid risk management processes and act in a transparent, fiduciary capacity can easily provide you with answers. The 10 questions I’ve listed below are what I consider to be the most important. Think of this as a starting point.
1. Are they fiduciaries? Bottom line, if a financial adviser acts in a fiduciary capacity, he or she is required, by law, to put your interests first. This affects everything from the way fees are structured, to the nature of the advice you’ll receive. Non-fiduciary investment professionals are held to less rigorous standards.
At Halbert Hargrove, we take this one giant step further. Every year, we undergo the audit process to achieve Investment Advisor Certification from the Centre for Fiduciary Excellence (CEFEX). Why do we believe this matters? Because no organization can be absolutely certain that they are rigorously protecting their clients’ interests in a fiduciary role and adhering to best practices without objective, expert, third-party review. In a similar vein, you should also be asking whether the firms you’re interviewing or their advisers have ever been subject to regulatory or disciplinary actions—and what processes they have in place to make sure this won’t happen in the future.
2. What safeguards do they have in place to protect your privacy, personal information, and money from hackers and other fraudsters? Ensuring the security of your financial assets is paramount in today’s environment. The skills and moves of cyber thieves are legendary. Your adviser should be employing the most sophisticated technology available to protect your privacy and your assets—and continually upgrading.
3. What are the qualifications, licenses, certifications of their professionals? In short, what formal training have they had? And how many years of experience do they have in advising clients? Recognized and valued professional designations include Certified Financial Planner (CFP), Chartered Financial Analyst (CFA), Certified Public Accountant (CPA), and Accredited Investment Fiduciary (AIF).
4. How do they charge for their services? If they are a “fee only” adviser, do they still receive commissions and/or payments from service providers through a broker/dealer side of their business? All fees should be completely transparent—and proactively disclosed. True fiduciaries follow a strict ethical code—and steadfastly avoid the conflicts inherent in running both a fee-only (Registered Investment Advisory) business and a commission-based (broker/dealer) business under the same roof. For example, an adviser working for this type of hybrid firm could say they were acting as your fiduciary, while at the same time benefitting from some form of kickback from investment product providers.
5. Does the firm have direct custody of clients’ assets? Remember Bernie Madoff? One reason he was able to maintain his scam for so long was that his firm “held” its clients’ (in many cases, nonexistent) assets. Financial advisers should use an independent third-party custodian or clearing firm that has direct custody of your assets. This gives you an additional level of security.
6. What is the firm’s investment philosophy? This is what drives the way your investment portfolio will be structured. What is the adviser’s view of risk? How do they determine your relative willingness to take on risk—and how would they allocate investments consistent with that? Whatever the approaches, these should be a great fit with your own preferences and views on investing.
7. What does their client service experience look like? Your adviser’s services should be tailored to your unique needs. You’ll want to find out about the nature and frequency of their communications with you. How will they stay in touch with you? How often will they meet with you face to face?
An additional consideration is the way the firm’s services are structured. Does the adviser offer a team approach? At Halbert Hargrove, our clients work with a team of professionals, who all know their clients equally well. With a team structure, professionals’ personal leave is a non-issue.
8. What kind of succession planning has the firm performed? If your adviser retires, your “relationship” could be handed off to junior partners or sold to another firm. The firm could also be dissolved. The point is, any firm that is worthy of your trust should have prepared careful groundwork for potential transitions—and share that information with you.
9. What do they bring to the table that no one else does? This is a way to hear about strengths and unique attributes. For example, at Halbert Hargrove, we collaborate with all of our clients’ expert advisers, including attorneys, CPAs, and insurers, to integrate tax and estate planning, charitable giving, and special family needs: every financial concern from soup to nuts.
If the stars are aligned, you might also hear responses that tell you you’d enjoy spending time with this group of people. They might share your values. Or even your sense of humor!
10. Can they provide you with statistics on their client retention rates and longevity of client relationships? Just like investment performance, when it comes to client satisfaction, true numbers don’t lie. What percentage of clients transition out of the firm per year? What’s the average number of years current clients have entrusted their finances to the adviser? If an adviser says they don’t have these numbers, you should question why not.
Like all the important relationships in your life, it can’t hurt if you actually like the person—and potentially, team—you’ll be working with in the years ahead.
Russ Hill CFP®, AIFA® is CEO and Chairman of Halbert Hargrove, based in Long Beach, CA. Russ specializes in investing, financial planning and longevity-awareness solutions.