Choosing a Financial Advisor

A successful relationship with your financial advisor depends largely on three things: an alignment of interests, well informed expectations and a high level of competency.

Alignment of Interests
An effective way to foster an atmosphere of trust and collaboration is to ensure that client and advisor have a vested interest in the same outcome. Management fees that are tied to asset size make a direct connection between client performance and advisor compensation and remove a potential source of conflict that can exist when advisor compensation is based on sales commissions or billable hours. A compensation structure cannot ensure performance but it should not be a cause of mistrust.

Well Informed Expectations
Every investment approach has inevitable ups and downs. A key to maintaining discipline through periods of adversity is understanding how and why decisions are made. Knowledge of the investment process is the most important part of building a reasonable set of expectations and being able to tell the difference between normal ebbs and flows and something more problematic. A track record of historical performance without the context of the decision making and risk taking process that produced it can be very misleading. Without understanding the process, it is impossible to determine if the result was something that can be reproduced in the future or if it was a one-off stroke of luck.  (For more on this subject, please read Past Performance yadda, yadda, yadda…)

The investment business is full of smart people with good intentions. Unfortunately, being smart and well-intentioned does not automatically translate into investment competence. But how do you judge competence? What questions should you ask a prospective advisor? Here’s a few you might try:

  • How do you manage the risk of falling markets?
  • How would your approach fare in a Japanese style 20+ year bear market?
  • How would your approach fare in a Greek/Spanish/Italian type environment where stocks, bonds and real estate are all falling at the same time?
  • How do you tell the difference between normal ups and downs and a bad investment?
  • After you get out of an investment, how do you know if or when to get back in?
  • How would you be able to tell if your process had a problem that needed to be fixed?
  • How do you accommodate investors of varying risk tolerance?
  • Can you describe the most favorable and most challenging market environments for your approach?
  • How and why was your approach developed?

Ideally, your financial advisor will have carefully considered his process and thought through a wide variety of contingencies just in case markets don’t behave in the way we would like. We can’t control markets, but we can control how we react to them. Managing someone’s life savings is a serious responsibility and deserves an approach that has been crafted in an equally serious manner.

For more information related to the PLC Asset Management approach and to the types of client we serve, please see our Frequently Asked Questions page.

Check the background of this investment professional on FINRA’s BrokerCheck.