I saw the video by our MoneyWatch editorial director Eric Schurenberg on “How to Find an Advisor,” and I quickly thought about the principles I recommend you follow when trying to find an advisor you can trust. I thought it might be helpful to share this list with you. The following are 11 principles your advisor should live by.
Please note that I touched on a few of these in my post “How to Choose a Financial Advisor,” but I thought the full list would be beneficial as well.
Act in the best interests of clients
This should go without saying, and thus should be your advisor’s guiding principle.
Follow a fiduciary standard of care
This goes along with my first point. Many advisors (including broker-dealers) only have to follow a suitability standard, meaning the investments they recommend only have to be suitable for you and not necessarily in your best interest. There’s no reason why you should accept a suitability standard. If an advisor will not provide a fiduciary standard in writing, run.
Deliver attentive service
You want to work with an advisor who will develop a strong personal relationship with you and your family. This becomes especially important during times of stress. I know that there will be times when the conversation won’t be pleasant (like many I’ve had during the market decline), but that’s when it’s most important to be discussing the issues. Thus, you want to make sure you are working with someone who will be communicating even more during such periods.
Build customized investment plans
All investors have unique abilities, willingnesses and needs to take risk. Your investment plan should reflect those unique characteristics.
Give advice that is goal-oriented, not returns oriented
Your investment plan runs into danger when you focus on the short term instead of the long term (and your goals). That’s why advice should be focused on your goals and not on the noise of the market or the product du jour.
Seek out experts when needed
When I think of your investing needs, I think of the App Store for Apple’s iPhone: “There’s an expert for that.” Those experts should be leveraged to make sure you’re getting the best advice possible. No one can be an expert on everything. There should be a team or the advisor should be able to leverage strategic relationships to provide you that expertise.
Focus on advice, not products
It’s more important to figure out your needs, and then find the most appropriate investment vehicles to meet those needs.
Make sure fee structure is in your best interests
You want to minimize the potential conflicts of interest between yourself and your advisor. A fee-only structure is the best way to do that.
Practice full disclosure
For those conflicts that still exist, make sure they are fully disclosed and explained.
Take advantage of academic research
Make sure that the advice given is based on the latest scientific research, not on opinions.
Practice what I preach
Why would you work with an advisor who doesn’t invest in the same vehicles he or she recommends?
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