How to Get the Right Financial Advisor
I am a huge fan of Jason Zweig’s “Intelligent Investor” column every weekend in the Wall Street Journal. Last week, his article discussed the process of finding the right financial advisor for you.
As Zweig stated; “a good [financial advisor] is extraordinarily valuable”, but it takes a lot of research and digging to find a good advisor.
Zweig gives a lot of tips for those looking for a financial advisor, and I thought that I would put all of the information he recommended to seek out about a potential advisor in one easy to find location, hopefully saving you some time:
Step 1: Look for Fee-Only advisors.
Hylland Capital has been a fee-only advisor since day 1. We are a member of XY Planning Network, which mandates that all members be truly fee-only.
But, as Zweig warns, don’t just take our word for it – “Many advisors claiming to be fee-only may in fact accept commissions that could induce them to put their interests ahead of yours.” Be sure to check out the Fees and Commissions sections of our ADV (The entire ADV can be found here: http://www.adviserinfo.sec.gov/IAPD/content/ViewForm/crd_iapd_stream_pdf.aspx?ORG_PK=281574) and Part 2A can be found here: http://www.adviserinfo.sec.gov/IAPD/Content/Common/crd_iapd_Brochure.aspx?BRCHR_VRSN_ID=347222
Our Item 12 disclosures:
Step 2: Look for a 1% or less annual fee:
Per our ADV, our annual fee is 0.7%, with a minimum charge of $75 per quarter.
Step 3: Look for past lawsuits, legal claims and past customer disputes.
Any previous legal claim, lawsuit or customer dispute will be documented on our ADV filing. We currently have none:
Step 4: Ask Questions.
Zweig gives a few examples:
1) "Do you try and beat the market?"
We make no effort to try and “beat the market”. Our client portfolios are set up to reduce costs, reduce turnover and achieve your long term goals with no concern over the performance of the market’s most recent quarter, or even year.
Many clients may grow tired of us warning about inevitable periodic declines in stock prices. They WILL happen – and we don’t hide the fact that we will not escape them. What we will do is ensure that you are set up and able to weather whatever the market throws at us.
Our portfolios contain a mix of stocks, bonds, international holdings, real estate, cash and more. It is unavoidable that there will be years they will underperform, or even outperform “the market” (whatever benchmark you choose to use).
For example: This year, a client’s portfolio may be outperforming the S&P 500 because of their portfolio’s exposure to international stocks and long term bonds, which have gained much more than domestic stock markets. This is not a reflection of our “skill”, but merely a consequence of holding a diversified portfolio. Likewise, when a client’s diversified portfolio “underperforms” in a direct comparison against the S&P 500 – it is not evidence of our “lack of skill”, but is instead a result of us spreading out risk into multiple asset classes.
2) "How often do you trade?"
Our goal is to have a 0% turnover in client portfolios. (That means no trades - as we have stated in our previous blog post: “ Our Take on the Active vs. Passive Debate “ which describes our investment philosophy in a bit more detail). But obviously sometimes it is beneficial to make trades to rebalance a portfolio, tax loss harvest, etc. We view portfolio turnover as one of the largest drags on performance, and manage portfolios with that in mind.
I am a firm believer in a couple Warren Buffett’s quotes:
· “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.” And,
· “If you are not willing to own a stock for 10 years, do not even think about owning it for 10 minutes.”
3) "Do you have a view on where interest rates, inflation and the dollar are headed?"
You will not see us making forecasts on the direction of the stock market, interest rates, currencies, commodities, the presidential election, or anything else. Our strength is not in predicting the future, but managing its risks.
To end with one last Buffett Quote:
"Thirty years ago, no one could have foreseen the huge expansion of the Vietnam War, wage and price controls, two oil shocks, the resignation of a president, the dissolution of the Soviet Union, a one-day drop in the Dow of 508 points, or treasury bill yields fluctuating between 2.8% and 17.4%.
But, surprise – none of these blockbuster events made the slightest dent in Ben Graham’s investment principles. Nor did they render unsound the negotiated purchases of fine businesses at sensible prices. Imagine the cost to us, then, if we had let a fear of unknowns cause us to defer or alter the deployment of capital. Indeed, we have usually made our best purchases when apprehensions about some macro event were at a peak. Fear is the foe of the faddist, but the friend of the fundamentalist.
Have other questions you’d like to ask? Don’t hesitate to send me an e-mail: email@example.com
Step 5: Red Flags
“If the advisor’s questions to you center on how much you have to invest, it’s a red flag.”
You will notice that nowhere in our initial questionnaires or meetings for investment management is the question, “How much money do you have”. That is because we have no minimum account balances for our clients. Simply put, the amount of money you have is not important to us. What is important is that we are a good long term fit for you in providing investment advice. The assets will come with a proper plan and its execution. We like to say that Hylland Capital is “made to grow WITH you.”
Step 6: Request an Initial Meeting.
“…and make sure they don’t charge for it.”
We charge nothing for our first meeting, second meeting, third meeting, or as many as you require to feel comfortable with our business. We understand that choosing the correct investment advisor may be one of the most important choices you make, and we make an effort to make sure you are comfortable before signing on.
And best yet, because we utilize today’s technology, meeting with us can be as easy as sitting in front of your phone or computer. We prefer virtual meetings via Skype or Google Hangouts to make it easy and convenient for our clients to meet with us. Forgot to ask a question in our first meeting? Schedule another – no charge, and no hassle. You can read more about our technology platform, here.
The first step for potential clients is contacting us or filing out our initial questionnaire, found here, to set up a no obligation, no cost meeting.
Step 7: Never make a decision right there.
“You need to be away from the person to form an objective final opinion.”
We do not even attempt to have a client sign an agreement with us after the first meeting. Our initial client meeting serves to gather more information and allows us to build the appropriate plan for you, and allows you time to ask us questions (see step 4 above). Only after that is done, and you (and us!) have had time to decide if a relationship is a good fit, will we talk about signing an agreement.
That should give you a good head start on doing your due diligence on Hylland Capital.
If you think we are a fit for you and your investment needs and goals, don't hesitate to give us a shout!
Zweig's entire article can be found here (but may require a WSJ subscription): How to Get the Right Financial Advisor