How do you advise I research a new financial advisory firm?
I am looking to change financial advisors. The firm I'm with now constantly changes my advisor. How do I go about finding a new firm. I am not looking for your typical large firm: Schwab, Edward Jones, etc. Also, how do I research these firms?
If you are looking for a small independent fee-only firm, a Registered Investment Advisor (RIA), like myself, is the best place to start is www.NAPFA.org. All are CFPs, all have to perform a financial plan screening process, all sign a legal fiduciary oath, and all are required to have extensive continuing education. I have been doing this for over 15 years and you won't find a better group of people.
You can also run your own quick and easy background checks. The middle of the front page of my website has links to government websites -- you can run searches on anyone. You can use mine as to what a clean record should look like:
When doing your search make sure your advisor will sign a Fiduciary Pledge for every they do for you, not just some advice. Many advisors now are "dual registered", meaning they can act in your best interest some of the time but not all. They can take the fiduciary hat on and off as they please. They actual practice this with real hats in training! as you probably guess, this makes the fiduciary role meaningless.
You want someone you will ALWAYS put your best interest first, not just legally but in practice too.
Mark Struthers CFA, CFP®
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This is for informational purposes only. Your specific situation would need to be taken into account. All information is subject to change. Not to be considered investment, tax, or legal advice.
It takes work to discover truly independent financial advisors. They will usually be listed on finra.org which is the official federal registry of registered financial advisors; you can check those in your area and see which ones have the best long-term records with the fewest complaints by their clients. Many large institutions will tend to recommend nearly identical asset allocations for their clients to minimize lawsuits and to guarantee steady compensation for their employees rather than to maximize your long-term after-tax returns which should be your advisor's goal.
Every investor’s nightmare question. I might suggest you look at each firm as if you would go work for them. Think about answering the following questions and how they apply.
Would you like working with them all day five days a week? If no, then go find somewhere else to go.
Do you have uncertainty about keeping the job long term? Then you may want to reconsider.
During hard times will management communicate a clear picture?
Are you going to be just a janitor for the company that can be replaced at a moment’s notice?
Or will you be a significant key employee they will do everything to keep you?
I'm assuming that because you constantly had advisor changes that you were closer to the janitor side (in their perspective) of the average client size for that firm. This has no reflection on who you are, because I’ve seen 5 million dollar accounts get pushed around a firm whose average clients size was 60 million.
Also, if they can’t explain your investments to you in simple terms then I would recommend you look somewhere else. This is a very complicated industry, but after 18 years I’ve found that it usually can be explained simple enough so that the client understands. If they won’t take the time you need to understand then you’re not significant enough to them and I’d move on. Just because they are big doesn’t mean you will get the service you need.
Changing your perspective of what you’re looking for will help you better identify what you’re looking for. I’ve found a Rule of thumb that works pretty good. “If they can’t explain it to you so you understand then they either don’t know it themselves or they have another agenda that is probably not in your best interest.”
Remember if you can't get along with employees and management it will eventually not matter how much they pay you.
First and foremost, I suggest finding a fee-only planner that holds themselves out as a fiduciary. What that accomplishes is two-fold: 1) the advisor does not charge commissions, 2) the advisor has to act in your best interests and disclose any conflicts of interest.
Another aspect that I think is becoming increasingly important is whether or not the advisor is CFP® certified. If not, it's not a deal-breaker, but I would want to know a lot more about that advisor before I sign the dotted line. Furthermore, I believe finding someone who has specialized expertise in the area that suits your needs/goals will ultimately help you find an advisor that you stick with long-term.
To begin, I would do an advisor search through one of the following organizations:
- NAPFA - www.napfa.org
- Why Fiduciary - www.whyfiduciary.com
- Fee-only Network - www.feeonlynetwork.com
- XY Planning Network - www.xyplanningnetwork.com
- FPA - www.plannersearch.org
Lastly, you can check the advisor's background on www.brightscope.com to ensure they have a clean record. I might also do an old fashioned Google search on the advisors you selected to see if you find anything else that might be a deal-breaker. Hopefully, this helps you find the right fit. Good luck!
If you are looking for an independent advisory firm, please know that "advisor" is a generic term that covers several different types of businesses: Wealth Managers, Registered Investment Advisors (RIAs), Financial Planners, and Brokers. Many firms are "more than one of the above" with dual regisrations and licensing. There is a wide range of quality of service, unfortunately, and it really depends on the size of your assets. While some financial planners and independent brokers will give you service if you have under $200,000, you can pretty much expect to be treated like a number unless you have at least a million. Once you have selected a few possible firms, check them out. They should be registered with the SEC (if they manage over $100 million) or various states (if they are smaller). Go to http://www.adviserinfo.sec.gov/IAPD/default.aspx and enter the firm's name. Then, read their ADV Part 2. It's usually written in dry prose, but must by law be a complete description of their business. You can also check FINRA but be aware that RIAs do not need to register with FINRA unless they sell securities, so a FINRA-registered advisor is actually a broker.