Not all of the certifications and designations (abbreviations for them are the alphabet soup you see after their names) are professionally significant. Some are primarily for marketing purposes. Yet many of them require holders to engage in continuing education to broaden and deepen their knowledge base and expand their skill set. Holding the more credible of these titles generally reflects a goal of constant improvement and a general openness to new ideas about the best ways to serve clients.
You're looking for indications that your advisor is aware that the world is changing and that there may be better ways to do things, and is always endeavoring to improve.
Academic degrees are also positives, but they don't matter as much as advisory experience. A degree in business or economics is helpful, but not essential. If your advisor studied history but has logged 20 years as an advisor and is involved in professional learning opportunities, then you shouldn't hold his lack of a pertinent academic degree against him. Look for substantial experience serving clients.
3. How many clients do you have like me in terms of asset totals, life situations and goals? Advisors tend to classify clients in separate groups of people with common traits. You want to be in the group that comprises most of an advisor's clients. You don't want to be a one-off, because you don't want to be paying an advisor to learn on the job how to best serve someone like you. You want them to know this when you walk in the door so you can get the best service from the get-go.
4. Where do you want to take your firm down the road?
Is the firm planning to vastly expand from a boutique operation to a mega-firm with many more clients, making you less important? Or is the plan to scale down, become more boutique and jack up minimum investment requirements so high that the firm may not want you any longer? The point is to ensure that your long-term interests aren't inconsistent with or subordinated to those of the advisor.
You want an advisor with a well-articulated investment philosophy who can structure a solid, long-term investment strategy for you — one that will give you confidence in good times and bad.
This is an important area to explore, because how the advisor runs the business provides clues as to how they would run your personal finances. If advisors can't plan long-term for themselves, how can they do it for you?
5. What is your process for bringing new clients on board?
If there is none, this is a problem. If an advisor's answers fail to show a thorough process for getting to know you and learning about your assets, goals and risk tolerance, then the advisor likely won't render you good service. A desirable onboarding process might involve an extensive interview, a written questionnaire or both. Either way, there should be a lot of specific questions and a lot of listening involved, and taking notes or recording. Then the advisor should take this information and develop a specific financial plan based on your situation and present it to you with a rationale demonstrating why it's the best plan for you and your family.
If an advisor is quick to make investment recommendations, this is usually a red flag. Does your doctor write prescriptions without examinations or tests?
Good advisors should be willing to do this orientation work up front to serve you better — and they should have a well-conceived, standardized process for doing so.
Charles P. Boinske is president of Independence Advisors LLC , and has been a financial advisor serving individual investors for 25 years. A Chartered Financial Analyst, Boinske has been a featured speaker at national industry conferences and is a member of the New York Society of Security Analysts.