How To Hire An Investment Advisor

Posted on August 30, 2013 at 11:39 AM PDT by

If you manage to save up enough money to worry about it — and I hope you have this problem — you eventually wonder if you need to hire an investment advisor.

First, a disclosure. I am an investment advisor. Yet I offer this advice now with no ulterior motive. You might hire me or someone like me in the future, but what I really want is for you to think through the reasons — pro and con — regarding this decision. It’s an important call and worth taking your time over.

investment advisor

Here’s how I would approach the question of hiring an investment advisor. Ask yourself the following:

1. Do you need an investment advisor?

Perhaps you don’t. If you have a smaller portfolio, say under $100,000, your first aim should be to accumulate more retirement savings. It’s probably most efficient to use a service such as we offer at MarketRiders or, if you don’t care for hands-on trading, to buy a balanced fund, such as a Vanguard LifeStrategy Fund. The investment fees charged by investment professionals are not chicken feed, so consider the value derived in relation to your actual savings to date.

2. Are your investments complex, or simple?

People adore complexity in their investment life. They own jumbled collections of stocks and bonds with little rhyme or reason, then they take on equally complex jobs and personal investments in businesses and real estate. Part of what an investment advisor should do for you is help you reach your financial goals in life in the context of your needs. That might mean adding value by simplifying.

3. Do you have clear goals for your money?

Too often, people set vague goals for their investments. “I want to retire” or ” I want to be comfortable” are common notions. Being concrete about the terms is important. “I want to retire at 62 and travel twice a year, cover my living expenses plus inflation and leave behind a legacy for my two children” is much more clear. An investment advisor can help you craft a better statement, one you might measurably achieve.

4. Do you understand what advice costs?

This is huge. People too often confuse price with results. Demonstrably, high-priced investment advice works directly against your interests. If you don’t have a good idea of what to pay, you are likely to pay too much.

5. Are you free to make decisions?

I hear this over and over again: “My adviser never calls me. He overruled my idea of what to do next. I haven’t talked to her in years.” If you are a do-it-yourself investor, you probably don’t mind the isolation and would just like some help designing a retirement portfolio. If you actually want to buy and receive advice, communication on a periodic basis is a must.