Which Advisor is Best?
Since advisors don't provide audited track records and it’s difficult to measure competency and integrity, just how do you select the best advisor for you? The answer is very carefully. Even though they are hard to measure, you must focus on the advisors’ documented credentials while minimizing the impact of their personalities and sales skills.
Highest Level of Trust
It doesn’t matter how smart professionals are if you can’t trust their advice. Therefore, it’s imperative that you select the professional that you believe is the most trustworthy.
Substantial Knowledge
Select the professional who has the greatest amount of knowledge that will help you achieve your financial goals. For example, if you need a professional with planning skills, you should pick the planner with best education, certifications, association memberships, and experience. Knowledge does not guarantee a successful experience, but it's critical and measureable.
Personalities
There is an excellent reason why personalities should have low importance. The very best advisors are quantitative and analytical by nature and may not have the most outgoing personalities. These personality traits are much more valuable than those of advisors with more outgoing personalities who buy lunches and send birthday cards. You shouldn't be looking for a friend. You want a professional who can help you achieve your goals.
Sophisticated Services
Select the professional who can prove he or she will deliver sophisticated wealth management services. For example, if it’s a planning service, you want one with a Monte Carlo simulation capability. Or, if it’s an advisory service, pick the advisor who can best optimize the relationship between risk and return. Sophisticated services increase the odds you’ll achieve your goals.
Lower Risk
Select the professional who represents the lowest probability of providing bad advice and the highest probability of developing a strategy that produces consistent returns for reasonable amounts of risk. You want the lowest risk strategy that will still enable you to achieve your financial goals.
Lower Expenses
All other things being equal, you want to select the professional who proposes the strategy with the lowest net cost. For example, one advisor recommends a mutual fund manager with a 1.5% fee, while another advisor recommends a separate account manager with a 0.5% fee. The managers provide similar services and have similar track records; however, one is three times as expensive as the other with no offsetting benefits.
Probability of Success
Your ultimate challenge is selecting the advisor with the highest probability of helping you achieve your financial goals. Because advisors don’t have audited track records, you have to base your decision on credentials that document knowledge, integrity, services, and other hard-to-measure criteria. When you add up all of the variables, your best advisor will be the one who achieved the highest overall score.
Comfort Zone
Your selection process must be rational, thorough, and objective for you to pick the best advisor for your situation. Only as a last step, when you’ve completed your objective evaluation, can you let some subjectivity creep into your selection process. At this point, you’ve done your homework, so pick the professional you are most comfortable with.
