You will see articles with tips on hiring financial advisors on most investment service web pages and elsewhere on the internet. Getting your money under their care is the reason these advisors exist. They usually charge a percent of your portfolio value so the more you have to invest with them the more they will love you.
R Cubed Group does not accept investment money from outside sources. We only invest with our own money, so we have nothing to gain from who you pick to be your investment advisor. We just feel strongly that you should invest as wisely as possible and for some people that may require the help of an outside advisor.
Finding and hiring the right advisor may be the most important thing you do to make your financial goals secure a comfortable financial future. Working hard and earning money to invest is only half the challenge. Making that money work hard for you is the other half of the challenge. Making mistakes here can derail things over time.
I heard a horror story where someone turned to someone representing themselves as a Financial Advisor who created a plan totally based on life insurance and annuities. The person they went to worked for one of the leading insurance companies. Probably not an unbiased plan.
Other possible independent resource to help you find a Financial Advisor might be Certified Financial Advisor database.
An investment portfolio return difference of just 3% more over 30 years can mean an extra $574,00 for every $100,000 you have to invest now. That’s only a 3% improvement. And that is exactly what the right financial advisor can do for you. get you more money over time.
I assume that before you even talk with a possible advisor you have looked over their credentials and background to be sure they are what you want. You can go here for tips on how to checkout an Advisor.
I will try not to repeat everything on all the web sites you will find if you Google something like “how to hire a financial advisor”. But I will provide something all those advisors probably wish you did not have…
NOTE: You will probably retain your current brokerage account and just implement your advisor’s strategies and trades in that account. You may even give the advisor limited trading authority over the account so they can do the trades and monitor the account.
Five interview questions for your potential financial advisor:
QUESTION 1: How do you get paid?
WHAT YOU HOPE TO LEARN: Exactly how the financial advisor makes money. Some will charge a percent of assets they manage and others will be based on an hourly fee. At a 2% fee for every 100,000 in assets you will be paying $2,000 a year.
THE PERFECT ANSWER: Something like, “I charge $200/hour for my time and typically would spend about ten hours a year (2 hours to assess your needs + 2 hours each quarter) specifically on your plan, recommendations and follow-up. “
NOTE: If you want to incentivize the advisor offer some type of bonus for beating the S&P 500 (symbol: SPY) or some other mixed bond/stock index represented by a ETFs like, VBIAX, VSMGX, or ABALX. These are all very low fee ETFs.
QUESTION 2: Why should I hire you as my financial advisor?
WHAT YOU HOPE TO LEARN: How the advisor sees themselves. What value they think they can bring to you. Their personal brand and what they stand for.
THE PERFECT ANSWER: Three things… (1) I will take the time to know who you are, your financial goals and risk tolerance. (2) The market and investment data systems I use will assure that I can identify investments match to your goals/risk tolerance. (3) I will not be a stranger… Over the year if things change, I will reach out to you with recommendations with needed changes to your portfolio mix.
QUESTION 3: How do you spend your day?
WHAT YOU HOPE TO LEARN: If this person is an asset gatherer or a researcher. Is their priority finding more assets for the company to manage or researching actual investments? And to learn about what type of systems they may use to alert them to possible situations that may warrant a change to your portfolio mix. And maybe learn something about their backup person. What happens when they are on vacation? Who is watching your portfolio?
THE PERFECT ANSWER: I try to split my day between about 70% doing investment research/managing portfolios and 30% investor interaction. My research and investment management systems are actually pretty sophisticated and designed to surface interesting investments, provide alerts when portfolios are not behaving as anticipated, and help focus research to find under-the-radar opportunities before the heard piles in. I have two assistants that help me. They are totally up on all the systems. For the few days that I might not be in the office they keep an eye on things and at all times have what is needed to contact me 24/7.
QUESTION 4: Tell me about a big win.
WHAT YOU HOPE TO LEARN: Because this is a pretty open question you may get some surprises. The goal is to learn about what the advisor really cares about. What he is most proud of. You should learn about his values. If the advisor talks about some Biotech stock they road up for a 122% gain that would be a red flag. These things are usually luck and you don’t want to invest with someone who bases their recommendation on luck.
THE PERFECT ANSWER: If the advisor answers about something not related to their Financial Advisory like how they coached a son’s baseball team to a little league championship or a trip to Haiti to build hospitals, then you need to tell them you meant related to what he they do as an advisor… Then if they say something like, “Back in February/March 2020 when the COVID crisis tanked the market my phone was ringing off the hook with investors who wanted to dump everything. I looked at each portfolio and determined all of the positions were in great companies that would weather the COVID storm and reassured people. We did not sell a thing and ended 2020 way up.”
If you get satisfactory answers to these four questions then you should ask for a few references from current people they are advising. Ask them to pick three people and send them your eMail address to set up a time to talk with them. These are the type of questions you could ask the references:
- How long have you been using the advisor? (The longer the better.)
- How did you find out about the advisor? (A personal recommendation from someone is good?)
- How happy are you with the advisor?
- Over the last few years has the advisor’s recommendations beat the S&P 500 (2020= 15.76%) or Stock/Bond ETFs like VBIAX (2020 = 16.40%)? (Remember you are paying the advisor to beat the indices or you could just put you money in ETFs.)
Finally, if you have enough assets and have identified multiple acceptable advisors, consider splitting the money between them and see how they do after a year. Move all the money to the winner. The fun part is that you should tell all the advisors that this is what you are doing. As a minimum the advisor needs to beat the indices.
Well.. I probably have not made and any friends in the investment advisory community but hopefully I have helped you become a smarter investor.