03/04/2016 01:55 EST | Updated 03/05/2017 05:12 EST

Picking The Right Adviser Pays Off For High Net Worth Investors

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In today's investment arena, high net worth (HNW) individuals are challenged to choose the best adviser to meet with their unique, individual circumstance. Several issues need to be kept in mind during the selection process.

No matter whether the adviser is employed by a large or small firm, investors need to be armed with the right checklist to minimize mistakes. Large investment advisory firms do allocate additional resources to protect against reputational risk.

However, they also tend to be more complex entities and therefore it should not be assumed that they always represent a lower-risk proposition as compared to their smaller peers. This article provides a framework of items to pay attention to when deciding on an adviser.

Credentials and experience matter

One's wealth needs to be managed with utmost integrity and professionalism. To increase the odds of this, investment advisers should possess superior credentials and a vast amount of experience. The gold standard, the Chartered Financial Analyst® (CFA) credential, has become the most respected and widely recognized investment designation in the world.

CFA® represents a high level of commitment to the evolving field of investments, and a strong understanding of financial theory. If the advisory does not have the credential ask him whether he intends on completing it. If the answer is "no," ask why not.

HNW investors should also consider the amount of years that the adviser has worked within the investment industry. Experience breeds wisdom, which can be invaluable. Questioning the adviser on how he dealt with two or three specific turbulent periods in the market may provide valuable insight as to whether this person would be the right match. A minimum of 10 years of experience should be sought.

Advisers need to "know your client"

Advisers are in the business of earning a living by growing their assets under management. To do so successfully requires a certain degree of skill at selling. When confronted with a prospect, advisers are wired to perform a three-step selling process that takes the form of: Meet, Propose and Close.

The "Propose" stage represents an opportunity for the adviser to provide a customized proposal. For the investor, this document is very important as it provides a clear indication whether the adviser listened to his investment objectives and tolerance for taking on risk during the initial meeting.

It is also an opportunity to see whether the adviser understood the client's source of wealth and backstory. The proposal is unlikely to witness the misspelling of the prospect's name, although stranger things have happened. If a proposal consists of too much boiler-plate and not enough original content, the recommendation is straightforward: run for the hills!

Another consideration is the turnaround time. For instance, if it takes 12 days to receive the proposal despite the adviser having a ten-person team working for him, this would not be a good sign. Especially if the expectation was given such that the document would be prepared within a few days.

Understanding the adviser's distinctiveness

Every adviser is distinct and making an effort to understand this is important. For instance, knowing how many clients the adviser has may provide one with an idea as to whether capacity exists to properly service new client relationships.

For instance, if the adviser claims to have 200 clients all of which are serviced by himself, it is more than likely that he is dropping the ball on client servicing or in monitoring client portfolios, or both. At the very least, one should sit down one-on-one with their investment adviser once per year. Establishing the frequency of interaction early on in the relationship is imperative.

Also, understanding whether the adviser will be present himself during the service call or will have a representative is also important. Looking forward to a meeting only to learn on the spot that someone else is representing the adviser is a strong signal for questioning whether one's wealth is being properly cared for.

This type of behaviour can happen, especially by advisers that are driven by their bonus rather than by building solid, long-term business relationships.


Past performance does not dictate future performance. Nevertheless, looking at what the adviser has delivered in the past is indeed important because in essence it represents a live case study. Investors should study the proposed investment portfolios on a relative basis by comparing each to their appropriate benchmark on a one, five and 10-year basis.

In Excel one can create a nice visual of the relative performance of varying portfolios and their time periods. For instance, one colour cell may indicate an outperforming time period and while another colour cell an under-performing time period.

Fee structure

When it comes to fees, the devil is in the detail. HNW investors need to clarify the following fee types:

  • Management fees
  • Mutual/pool fund management expense ratios (MERs)
  • Transaction fees

Custodian fees

In addition to understanding the above percentages, the HNW investor should comprehend the total fee dollar amount. A management fee of one per cent does not sound like much. However, when applied to a $2-million pool of capital pool, this would amount to $20,000, which is significant even for an affluent investor.

Again, it comes down to full transparency and to make certain that the adviser is providing it with respect to the fee structure. One can never be too careful when discussing fees.

Final words

American writer Maria Snyder once said: "Trusting is hard. Knowing who to trust, even harder."

During the adviser selection process, investors need to be able freely ask all of the questions that they feel they need to. They need to meet with the adviser as many times as they see fit. They may even need to examine several anonymous client portfolios until the moment that they can begin to feel trust. Each investor is different, including with respect to the time it takes to commit to a trusting adviser relationship.

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