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How to shop for investment advisors
For most people, investment advisors are just for the wealthy. In actuality, investment advisors can provide useful services regardless of your financial means. Hiring the right investment advisor can help you choose the right retirement fund or create a trust that protects your legacy for your immediate family and future generations.
What is an investment advisor?
While investment advisors perform many of the same functions as investment brokers, the two services are not interchangeable. In general, investment advisors oversee clients’ entire financial portfolios, including bank accounts, taxes insurance policies and pensions – as well as retirement and estate planning – in addition to investments. In fact, many investment advisors perform functions associated with attorneys who specialize in taxes and estate planning, insurance agents, investment brokers and accountants.
How do you compare investment advisors?
Which such a broad selection of investment advisors available it can be a challenge to choose one. These questions will help you narrow down the firm that is the best fit for you.
Is it a full-service investment advisor?
Full service investment advisors handle everything from establishing trusts to managing investment portfolios and administering retirement funds. So-called high-networth clients are often drawn to full service investment advisors. In plain English, that means that more affluent clients often have more complex financial portfolios that require individual attention. Naturally, full-service investment advisors that are staffed with highly-qualified analysts are more expensive.
However, depending on your circumstances, an assortment of limited service investment advisors may provide a better fit. For instance, one type of investment advisor may specialize in retirement funds while another exclusively creates and maintains trusts. People with more modest resources frequently opt for limited service investment advisors. These are often staffed by lower level agents rather than by brokers, attorneys or accountants. Such limited service firms also often rely heavily on software or automated services rather than one-on-one consultations.
Does it offer robo-advisor services?
In recent years, a new class of investment advisors referred to as robo advisors emerged. These robo advisors provide financial advice or investment management online with moderate to minimum human intervention. They provide digital financial advice based on mathematical rules or algorithms. These algorithms are executed by software and thus financial advice do not require a human advisor. The software utilizes its algorithms to automatically allocate, manage and optimize clients' assets.
Robo-advisors are bringing investment advisory services to a broader audience with lower cost compared to traditional human advice. While robo-advisors have the capability of allocating client assets in many investment products such as stocks, bonds, futures, commodities, real estate, the funds are often directed towards ETF portfolios. Clients can choose between offerings with passive asset allocation techniques or active asset management styles.
Does it charge a fixed fee or a commission?
There are two major payment models for investment advisors: commission based payment versus direct fee billing. Commission based systems provide compensation for brokers or investment advisors agents based on a percentage of the services provided. Direct fee based systems have fixed fee schedules – with set fees for specific services.
Commission based systems naturally provide an incentive for brokers or agents to sell more services. This can be advantageous in its emphasis on individual services – but a drawback because of the temptation to push services that may or may not be advantageous to clients. On the other hand, fee based systems are often less expensive, but savings may be realized by obliging clients to utilize one-size-fits-all services that may or may not be suited to individual investment advisors circumstances.
What is the minimum investment requirement
For high net worth individuals, minimum investment requirements imposed by investment advisor firms are often of little or no consequence. But for clients of more modest means, minimum investment requirements may present a barrier to utilizing certain services or prevent such clients from working with certain investment advisors.
How do you check the credentials of an investment advisor?
It should go without saying that any investment advisor you’re considering working with should be thoroughly vetted. Full service firms often include certified public accountants (CPAs) or other licensed financial advisers on staff. Limited service firms may include agents who provide generalized services. However, both can be be vetted by reading consumer reviews on SuperMoney and checking they are licensed and registered with your state securities regulator.
Investment advisors are required to provide detailed, up-to-date, and accurate information on Form ADV Filings with the Securities and Exchange Commission. These forms provide valuable data when comparing investment advisor firms.
We have reviewed the top investment advisors and summarized the most important information in easy to read reviews. Use the tools below to filter investment advisors and then read what our expert and community reviewers have to say about your top choices.