This space is usually dedicated to information relevant to registered investment advisors (RIAs) and how they improve existing and initiate new client relationships. However, it bears noting that an informed prospective client makes for a “good” client.
So we’re taking a different approach today. Clients and advisor shoppers, this one’s for you. The more you know prior to visiting with an advisor, the better off you’ll be. Advisors, don’t worry. There’s plenty of useful information here for you, too.
There are several questions would be clients should answer prior to committing to an advisor. Yes, that requires some self-reflection, but no, the task isn’t burdensome. A primary starting point is establishing exactly what you’re looking, meaning do you want holistic financial advice or simply a pro to manage your investment portfolio.
“Another big contingent of advisors—financial planners—concern themselves with holistic financial planning: setting and quantifying financial goals, paying down debt, determining insurance needs, and investing appropriately for college and retirement, among other tasks,” notes Morningstar’s Christine Benz. “Financial planners know investments, too, but investment selection and portfolio monitoring aren't all they do.”
Speaking of Holistic…
The next issue for prospective clients to consider -- scrupulous advisors can certainly help with this – is the type of advice/help you’re seeking and the frequency with which you think you’ll need the advisor.
For clients that don’t need a hands on, day-to-day approach, perhaps just a few meetings a year will get the job done. In cases like this, advisors often charge affordable hourly rates (they have to make money, too) and that might be the way to go for clients that don’t need high levels of attention and customization.
On the other hand, many clients need and want more. In addition to investment management, they’re seeking assistance on issues ranging from college savings, estate planning, long-term care and tax help, among other topics. Clients in that boat should read the following.
“If you expect that your advice needs will be ongoing, paying a recurrent fee—say, annually—may be more cost-effective than paying for advice on an a la carte basis,” adds Benz. “Most advisors who charge in this way levy their fees as a percentage of your assets; the percentage may decrease the more assets you have under management with an advisor. Both investment advisors and financial advisors charge for services in this way; the average rate for a $1 million portfolio is 1% of assets under management, but people with larger portfolios are apt to pay less.”
Know Yourself Part II
Again, it’s important for clients to know themselves prior to getting to know an advisor. That’s particularly true at an advisory business is increasingly tech-centric and many RIAs are turning to model portfolios to enhance efficiencies.
Data confirm many clients are comfortable with model portfolios and technology. Others aren’t and there’s nothing wrong with that. If you’re in the latter camp, make sure your prospective advisor can accommodate your wishes.
Another element to consider is how hands on/off you expect to be with your investments. Some clients turn everything over to an advisor while some retain capital to invest on their own. In the latter scenario, there’s savings in terms of advisory fees, but obviously, there’s no professional advice. It’s a give and take. On a related note, clients should consider what their individual investment philosophies and if they’re willing to work with an advisor that may take a different approach.
“Even if you don’t have a strong view of how you’d like your assets to be managed, it’s still important to ask some questions about strategy. Is the advisor clear and transparent about the approach?,” concludes Benz. “Does the advisor employ low-cost funds or more-expensive ones? How much attention does the advisor pay to tax efficiency? Taking the time to understand your advisor’s strategy can help you stick with the program through varying market conditions.”
Related: Advisors Needed as Investor Concerns, Fears Increase