Things You Should Pay Attention to When Choosing an Investment Advisor

One of the biggest challenges with choosing an investment advisor is that it is a very personal decision and no two people or criteria will be the same.  Everyone will have their own list of needs, goals, objectives, and biases; all of which can drastically change who the right financial advisor might be.

Unfortunately, with most financial institutions fighting headwinds of low margins, increased regulations, and skeptical clients, many firms are having to step outside their core competency, add services to bolster their balance sheets, and ultimately offer a cookie cutter approach to wealth management that only makes finding the right advisor more difficult.

To some, “one-stop shopping” may seem convenient; however the problem with this convergence of offerings is that clients are potentially sacrificing expertise, performance, and service.  It is more important now than ever to vet the options and understand the potential conflict of interest inherent to the business.  Despite the fact that criteria will vary dramatically for each individual, there are things to look for to help assist you in choosing a financial advisor that has the duty to minimize conflicts and offers solutions truly aligned with your specific needs.

 Broker-Dealer vs. Registered Investment Advisor (RIA)

A registered investment advisor (RIA) is considered to be a “fiduciary” to his or her clients. A fiduciary has the duty to work in the best interest of his or her clients, and to put the clients’ needs foremost. The SEC explains that “included in the fiduciary standard are the duties of loyalty and care.”  Broker-dealers are not bound to a fiduciary duty under federal law, states the SEC, but a broker-dealer is required to make suitable recommendations, and to disclose any conflict of interests to a client.  You may want to consider working with an RIA because they are held to a higher standard of care when managing your financial affairs.

Fee Structure

Understanding how the incentives work will be a very good indicator of how your financial advisor will behave with your money.  For example, a commission based advisor has an incentive to make recommendations based on a need to create volume rather than the merits of the underlying investment.  By engaging in a fee-based arrangement, the advisor will be able to sit on the same side of the table as you because his paycheck only goes up when your account grows.

 Investment advice

When an investment portfolio is being built for you, it is important to know who is making the calls.  The person you are dealing with is likely a sales representative.  It might be fairly obvious, but an important point not to overlook.  If your financial advisor is offering proprietary products, or has the dual responsibility of client interfacing and direct money management, chances are you interests aren’t being closely watched.   After all, a financial advisor will never fire himself for poor performance.  We believe you are best served by working with an advisor that helps build a portfolio using third party investment managers that make a living making investment decisions.

Financial Planning

With the proliferation of financial planning software, it has become increasingly easier to offer financial planning services to clients. Ultimately, a financial plan is only as good as its execution.  It might be important to assemble a team that includes a CFP, a CPA, an attorney, as well as the investment manager. Whether its financial planning, insurance or investment advice, make sure the firm/advisor has the expertise in all categories of engagements.


While most financial advisors today offer insurance, often times the determining factor in the recommendations for products or carriers are made for the wrong reasons (i.e. wholesaler relationship, sales incentives and or proprietary products).  You should make sure your advisor takes an independent approach to align the client’s needs with the appropriate and best solution.  By working with a General Agent with an open platform to choose from limitless products and insurance carriers, you are more likely to end up with an appropriate recommendation.

Custodial Responsibilities

Make sure the investment advisor utilizes a reputable 3rd party custodian.  Almost all investment fraud is committed by firms that not only manage their clients’ assets, but ones that custody those assets and are responsible for providing the detailed statements of those accounts.  Having a 3rd party validation (i.e. TD Ameritrade, Charles Schwab) helps to provide an extra layer of protection from the “Bernie Madoff” effect.  This provides an extra layer of protection as well as accuracy in account reporting.

We all want to believe our advisor when they say they want to do the right thing for us.  But when it comes to your life savings or your retirement nest egg, you can’t afford to make a decision on promises alone.

Most people spend more time purchasing a computer or a mattress than they do researching to find the best investment advisor.  Take your time, do your research and use these guidelines when looking for a “conflict-free” financial advisor.  After all, second to your home, your investments are usually the largest asset you will have.  By using this matrix to assist you in choosing the appropriate investment advisor, you can be confident that the financial team you have assembled will be working to do what’s in your best interest.

Important Disclosure: This content is for informational purposes only. Opinions expressed herein are subject to change without notice. Beacon Pointe has exercised all reasonable professional care in preparing this information. Some information may have been obtained from third-party sources we believe to be reliable; however, Beacon Pointe has not independently verified, or attested to, the accuracy or authenticity of the information. Nothing contained herein should be construed or relied upon as investment, legal or tax advice. Only private legal counsel may recommend the application of this general information to any particular situation or prepare an instrument chosen to implement the design discussed herein. An investor should consult with their financial professional before making any investment decisions.

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