How to Choose a Financial Advisor: Questions to Ask
Looking for a financial advisor can be overwhelming. A simple internet search will bring up hundreds of options. Choosing the right investment advisor is one of the most important decisions you'll make for your financial future. How do you identify the right one for you? What do you even ask?
Whether you want to change from your current advisor or find one for the first time, we’re here to help you. There's actually a wealth of publicly available information about investment advisory firms and their professionals. By asking the right questions and knowing where to look, you can make an informed decision about who will help protect your financial legacy.
Basic Checklist for Choosing a Financial Advisor
There are some in-depth questions to ask, but first, make sure they check off these basics:
Registered independent financial advisor
Fee-only
Fiduciary
Consider the Entire Financial Advisor Firm
Before entrusting your wealth to an advisor, it's essential to understand their organizational structure and decision-making process. Who are the key decision-makers, and what are their qualifications? Look for firms with experienced leadership teams and a strong track record of stable management.
Review their Form ADV, a crucial set of documents that all registered investment advisors must file with regulators. Part 1 provides detailed information about the firm's business practices, ownership, clients, employees, and any disciplinary events. Part 2, often called the "brochure," offers a clearer, narrative description of the firm's services, fees, investment strategies, and potential conflicts of interest. Along with Form CRS (Client Relationship Summary), these documents give you valuable insights into how the firm operates and serves its clients.
How Does the Firm Handle Money?
Understanding an advisor's investment philosophy and approach is crucial. Some firms maintain traditional investment strategies, while others embrace newer opportunities like cryptocurrency. Consider whether their investment approach aligns with your goals and risk tolerance. Ask about:
Their investment decision-making process
How they handle cash management
Their approach to legacy investments
Their specific expertise in areas relevant to your needs
What Are the True Costs?
Transparency in fees and compensation is paramount. Review the investment advisory agreement carefully – it should clearly outline what services you'll receive for the fees charged. Compare fees with similar money managers, but remember that the lowest fee isn't always the best value. Consider the full spectrum of services offered, including financial planning, pension consulting, and tax advice.
What Are Their Professional Standards?
A firm's commitment to ethical standards and compliance speaks volumes about their operational integrity. Ask about:
Their compliance program and who manages it
Internal controls, especially regarding money movement
Custody procedures for client assets
Their fiduciary responsibility to clients
Are There Any Red Flags?
While past disciplinary issues don't automatically disqualify an advisor, they warrant careful consideration. Look for patterns rather than isolated incidents. For instance, a single fee-related disclosure from eight years ago might be less concerning than multiple recent incidents. Pay attention to:
Disciplinary history and how issues were resolved
Staff turnover rates
Consistency in fee structures
Quality of client communication and accessibility
How Personal Is Their Approach?
Consider whether you prefer a more intimate, hands-on relationship with your advisor or are comfortable with less frequent contact. Local firms might offer more accessibility and personalized service compared to national firms, though both models can be effective depending on your needs.
Making Your Decision
Remember that choosing a financial advisor isn't just about finding the biggest firm or the one with the longest history. It's about finding a partner who understands your unique needs and has the expertise and infrastructure to help you achieve your financial goals.
Look for an advisor who:
Maintains high ethical standards and acts as a fiduciary
Offers services that align with your specific needs
Has a proven track record of stable management
Demonstrates transparent communication about fees and services
Shows a commitment to ongoing client education and support
The right advisor will not only manage your investments but will also serve as a trusted partner in your financial journey, helping you navigate complex decisions and protect your family's financial legacy.
Disclosures:
This article is not a substitute for personalized advice from Capstone and nothing contained in this presentation is intended to constitute legal, tax, accounting, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. This article is current only as of the date on which it was sent. The statements and opinions expressed are, however, subject to change without notice based on market and other conditions and may differ from opinions expressed by other businesses and activities of Capstone. Descriptions of Capstone’s process and strategies are based on general practice, and we may make exceptions in specific cases. A copy of our current written disclosure statement discussing our advisory services and fees is available for your review by contacting us at capstonefinancialadvisors@capstone-advisors.com or (630) 241-0833.