The business of wealth management has experienced rapid change and a marked evolution over the 13+ years that Broadstone Real Estate has been in business. Without question, this evolution is a prominent topic when speaking with individual investors, advisors themselves, and with anyone even tangentially connected to the broader financial services space.
According to the Bureau of Labor Statistics, approximately 5.3%¹ of American workers (more than 8 million people) are employed in the “financial activities” industry sector. That’s a lot of people that want to manage your cash! At Broadstone, we’re lucky enough to interface with a roster of talented and experienced Registered Investment Advisers (RIAs), wealth managers, and trust companies that implement our investment offerings into client portfolios. In my experience, the “crème de la crème” advisors all share certain traits. This list is certainly not exhaustive, but here are six questions that investors should consider when selecting a wealth advisor:
- Does the advisor take the time to understand your goals, risk tolerance, and cash flow needs?
In your initial interview with a prospective advisor, did he or she take the time to learn about your family, your background, and the way you acquired your wealth? Has he or she analyzed your risk tolerance, written down your personal/professional/monetary goals, worked to understand your tax considerations and cash flow needs (both now and in retirement)? Did they ask probing questions and treat you with respect in doing so?
- Did the advisor follow up with a plan and solicit your feedback?
In 2019, it would be quite easy for you to direct your funds to a “one size fits all” robo-advisory platform, but thoughtful, human advisors can add tremendous value by deploying customized plans to fit your scenario and risk tolerance. A thoughtful advisor will have analyzed you (and the marketplace) and crafted a plan that he or she believes will suit your needs. They will also ask for your feedback on the plan and gauge your reaction to the proposed course of action. If an advisor attempts to force feed you a one-size-fits-all allocation, they’re not necessarily adding any more feedback than a robo-advisor. If the advisor does deliver you a plan (and they should!), make sure you read it and share it with those that aid you in your financial decision making and estate planning considerations.
- Does the advisor offer access to alternative investments?
Research suggests that high net worth individuals (HNWI) should have anywhere from 10-35% of assets allocated to alternative investments. The phrase “alternative investments” is certainly a broad catch-all, and can include investments in real estate, private equity, venture capital, private debt, and other product types. These investments are generally less liquid than stocks and bonds due to the fact that they are not traded on exchanges, but typically exhibit lower volatility and reduced correlation to the broader equity markets. A thoughtful advisor specializing in customizing portfolios for HNWIs will have researched and completed product-level due diligence processes on their clients’ behalf and will be able to characterize the risk/reward considerations (including fee considerations) for inclusion in your portfolio.
The need for and value of alternative investments extends beyond HNWI, and across the universe of mass affluent (sub-millionaire) investors. This investor realm is notoriously under-allocated to alternatives (such as real estate), and advisors can provide tremendous value in the evaluation and selection of alternatives that achieve alternative exposure for the mass affluent investor.
- Are you comfortable with the advisor’s incorporation of technology (or lack thereof) into his or her practice?
Before selecting an advisor, you need to be comfortable with your own level of technological adoption, and make sure that a prospective advisor’s process will work for you. This is a multifaceted question and can include elements as simplistic as statement delivery, custodial flexibility and back office support, or as complicated as an advisor’s ability to quickly shift your portfolio allocations to allow for gains reaping, tax loss harvesting, or risk mitigation. Worldwide, all industries are being impacted by technological advances and efficiencies. You need to be aware of the way these advances may impact you and your nest egg… and your stress level.
- Fees: how much does the advisor charge?
Over time, fees will be one of the most impactful stimuli on your investment portfolio. It is appropriate for you to ask the prospective advisor how, when, and how much they will charge you for professional portfolio management. Before signing any agreement with an advisor, it is advisable to eliminate any “gray area” in the fee realm to ensure that you have an advanced understanding of the fee schedule. Simply put, you need to be comfortable that the juice is worth the squeeze, or this topic can crowd and cloud the rest of your dialogue with the advisor. Understanding this element upfront will help shield you from any unwelcome surprises and will enhance the likelihood of a trusting relationship between you and the advisor.
Speaking of which…
- Do you TRUST the prospective advisor?
Trust is the most important element of any advisory relationship. In the event of a significant market downturn or extreme volatility, will you have the “stick-to-it-tive-ness” to weather the storm alongside your advisor? If you and the advisor have not cultivated a trusting relationship, you are much more likely to let your emotions get in the way of your investment plan, which can result in catastrophic decision making.
There you have it! Whether you’re selecting your first wealth advisor, or re-evaluating your current portfolio and investment philosophy, keep these questions in mind and it should aid you in your decision making.
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¹Data as of 2016 and is the most recent available via the Bureau of Labor Statistics as of the date of publication of this post.