5 Things to Consider When Selecting an Investment Advisor

Our current market crisis has clarified the need for investors to work with trusted investment professionals. Obviously the Madoff Scandal has demonstrated how easily fortunes can be lost in illegal investment schemes. However, Ponzi Schemes are far less common than unscrupulous advisors who overcharge clients or recommend products that are inappropriate. I’ve run into many advisors over the years that cared little about their client’s best interests.

When selecting an advisor you should consider five things:

1. Experience - Select an advisor with who has been in the business for a while. The passage of time tends to eliminate many of the incompetents. As the industry undergoes its normal ebbs and flows, those financial professionals who don’t excel are separated out, either voluntarily or otherwise. When I was new I didn’t know what I didn’t know. New advisors often make mistakes with new clients. You are probably safe with anyone with at least seven years of verifiable experience as a financial advisor. Since a market cycle is typically five years, seven years is enough time for them to have experience both up and down markets.
2. Philosophy - Select an advisor with a compatible investment philosophy. Try to choose an advisor whose personal portfolio strategy mirrors your own. If you are a conservative investors who prefers low risk, don’t work with an investment manager who frequently recommends high flying stocks. Your advisors bias will always be reflected in the advice you are given.
3. Compensation – Get to know how your advisor is paid. The payment to your advisor must avoid conflict-of-interest. You don’t want an advisor who profits by putting you in or taking you out of an investment. The best situation is where advisor and client profit or lose together. Next best is an advisor, paid to provide advice, with no financial stake in the decision the client makes. Always ask how they are paid.
4. Expertise - Does the financial advisor handle the services you need? Consider whether you need individual financial planning, group planning, or portfolio management. Will you need help with securities, or simply need someone to give tax advice? Is the planner simply an insurance salesman? Find the consultant that provides the services that you need.
5. Team – Who is part of your advisors team? Is he a solo-practitioner, or does he work with other specialists that can strategize on the various issues? It’s rare you will find a single person with all of the answers, by working with a team you get the combined experience of the group.

There are many charming investment salespersons out there, ready and willing to sell their services to you. Do your homework. Approach every financial advisor with a critical eye. After you doctor, your investment advisor might be your most important relationship.

What To Do Now? (or....I'll Just Wait Until Next Year)

For both our retirement plan and individual clients we are getting a lot of the same type of questions: "What should I do now?", and "Can we talk next year...?". Obviously as we get closer to the holidays work can become even more hectic (not to mention that pesky holiday shopping). It is important to remember, though, that the market does not take this time off. Historically, December, and early January, has been a strong month for stocks (the so-called "Santa Claus" rally), so it may not be wise to ignore your portfolio.

After the last few months gut-wrenching losses, many clients have inquired about switching to cash "until this works itself out". Well, I'm not even sure what "this" is, let alone when it will "work itself out". As I've written before, we always recommend sticking to a well-defined investment strategy. Yes, there will be times when it will be challenging, but in the long-run I believe this is the best course of action.

And who knows, maybe Santa Claus will come early this year, and stick around a little longer.... we can all hope, and with solid investment advice you can be well-positioned if it happens.