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Selecting a Financial Advisor: Advanced Due Diligence

Selecting a Financial Advisor: Advanced Due Diligence

Financial Planning

Choosing a financial advisor to help you manage your money and meet long-term financial objectives is one of the most important hiring decisions you’ll ever make. Think of your advisor as your “financial coach” – taking a lead role in coordinating the advice from multiple specialists and then implementing a plan so it is all working together. Consider asking these questions:

Choosing Research

  • How much research do you have access to?
  • How do you decide what to review and rely on?
  • Is it all from internal sources?
  • Is it difficult to manage your book and stay on top of all the critical research?

Model Selection

  • Do you utilize some sort of asset allocation model?
  • Is there more than one promoted within your firm?
  • If so, how do you decide which to follow?

Product Conflicts

  • Does your firm manage proprietary funds or strategies?
  • Do you ever feel pressured into selling or promoting the internal product?
  • Do you ever feel the firm uses compensation as an incentice to drive your behavior?

Clients vs. Research

  • How do you spend your day?
  • What percentage of your time are you focused on the markets, research and making investment decisions?
  • What percentage of your time do you spend on clients?
  • Which do you prefer?

Fund Due Diligence 

  • What is your view on passive vs. active management?
  • Do you incorporate ETFs into the investment strategy?
  • How many funds and money managers are on your platform?
  • How do you narrow the field to the funds you beliveve in?
  • How do you monitor the underlying funds and what's your sell discipline?
  • Do you have a lot of third party wholesalers coming to your offices, buying lunches, etc.?
  • What is your view on that?
  • Is it just salemanship, or do you really learn something?
  • How do you find the time to look at all the right funds?

Target Client

  • How many clients do you cover?
  • What is the average household size?
  • Is your firm trying to build scale and shift Financial Advisor focus to higher net worth clients?
  • How do they incentivize you?
  • What would your CEO say is the ideal client in terms of liquid assets?

The right questions will tell you if a prospective advisor is right for you.