Thursday, October 05, 2006

How we selected our financial advisor

We've finally decided on our financial advisor and will be moving ahead with him / his firm this week.

This was our selection process:

0. Studied investment management process and business
1. Searched and looked for DFA related advisors (they have a good vetting process and we're comfortable with their philosophy).
2. Asked people we respected who worked with or knew financial advisors.
3. Made a survey of the market to compare fee structures
4. Identified critical differentiating factors:

a. discretionary vs. non-discretionary advice (is permission required)
b. does the advisor incorporate financial planning or offer it as in integrated process?
c. how will tax consequences be integrated into investment recommendations
d. accessibility and style
e. philosophy
f. aggressive evaluation of best investments for different asset classes
g. personality
h. interview current clients
i. examination of investment recommendations
j. most importantly - ethical standards
k. check regulatory databases for infractions / disciplinary issues
l. confirmed fee only / no comission or indirect compensation from investment providers

Things I wish I had done, but have moved ahead without doing them:

1. Visited the vanguard die forum - many advisors visit there - read their posts
2. Met in person (not required but helpful in forming an oppinion)

I expect to begin the process over the next few days. Here are next steps:

1. sign contract and return to advisor.
2. read survey instructions and provide financial information

The next steps are somewhat speculative but will be confirmed later:

3. review survey / clarify / provide additional information
4. participate in asset allocation model planning process
5. wait for research and plan creation process to be completed
6. review resuls / discuss / modify
7. open new accounts and trnasfer assets as necessary (to institutions with custodial services or cheaper transaction fees)
8. advisor begins investment management process

Hope this is helpful for all of those considering hiring a financial advisor.

Anyone who has already done so, I'd be grateful to hear any recommendations regarding this phase.



2million said...

Is your advisor local? Would you change advisors if you moved?

If I have an advisor I need to look him/her in the eye and develop a good relationship - seems very challenging if that person isn't local.

makingourway said...


No, he's not local.
As a matter of fact, we haven't met in person.
Although I would prefer it, I'm comfortable enough with the people that referred him and my interactions over the telephone (and correspondence).

I do intend to visit him some time next year however.

As a non-discretionary advisor, there's less that he can do in terms of damage than a discretionary one. Nonetheless, I suppose the biggest risk is identity theft.


fin_indie said...

can you share details about his fees? how much does he charge for the advisor role?

makingourway said...


As his client base is fairly small, I'd prefer to keep the specifics confidential out of respect for him.

However, these are the fees I saw during my survey for investment management:

0.25% assets under management (AUM)
with a $2,500 minimum - no investment plan creation fee

0.6% aum with a $4,000 minimum + investment planning fee

1.0% aum with investment planning fees.

The vast majority of fee only financial advisors seemed to charge 1.0% AUM, which I'm very uncomfortable with. My preference is 0.6% or lower.

Investment plan set-up fees seem to run from $500 - $2000.

I think Schwab charges a setup fee and 0.5% AUM for financial advising, but I didn't feel the quality was as good as from an independent.

Good luck,

fin_indie said...

agree with on the AUM of around 1% or more (that's ridiculous). For the investment plan setup, what is included for the $500 to $2000 charge? a standard financial plan (asset allocation, insurance, wills, trusts, etc) or asset allocation work with specific investment choices, or some combination?