For some investors, the decision to work with a financial professional is simple. Perhaps you don’t want to put in the time and effort to learn how to be a good investor and manage your portfolio. Maybe you’re looking to avoid making critical mistakes. Perhaps you’ve read the research showing that investors working with an advisor will, on average, outperform (net of fees) those who don’t. If you’ve made the decision to work with an advisor, the big question is this: how do you choose the best advisor? 

Selecting the right advisor is likely to impact critical parts of your investment experience. Your returns. Your anxiety level. The financial education that you receive. Your ability to enjoy your investment experience. These are but a few of the ways that the right advisor can impact for you in a positive way. 

For my money (pun intended), finding a fiduciary advisor is an important step. A fiduciary advisor is required to make decisions in the best interest of the client, without consideration for their own interests. As an example, some advisors get paid more if they invest their clients in a certain family of funds, or in a certain type of annuity. While it’s possible that the investment they select is in fact the best option for you, how can you be sure? It’s very hard to have full confidence when there are conflicts of interest present, even though most advisors are certainly ethical people. In the case of a fiduciary advisor, their income will not change based on the fund company or companies they use for your investments, so there are less likely to be conflicts of interest present. 

Equally important, you should focus more on the value an advisor can bring you and less on the cost. Consider this: you’re planning to visit Lake Tahoe for the first time, and you want to rent a boat. If you plan your trip in March, the boat is cheap! Only $99 (I’m making this up for the sake of my argument) gets you a full day on the boat. You can count on a few things during your time on the lake in March—the water will be too cold for swimming or water sports (unless you rent dry suits and such), there’s a decent likelihood of snow and wind, and your day will turn dark before dinner. If you plan your trip in July, the boat will cost you more, let’s say $249. The lake will be 70 degrees, you can waterski, wake surf or pull a tube behind the boat, and you’ll have a nice 8:30pm sunset. 

Which scenario costs more? The July rental. Which one provides more value? I would argue that it’s also the July rental. 

Similarly, you can select a financial advisor based on fees alone, but that would miss the point. The cost of the advisor is an important consideration, for sure, but it shouldn’t be the most important consideration. I recommend that you save that spot for the value of an advisor. 

Any advisor can provide you with an investment portfolio. A good advisor can set you up with a good, suitable portfolio. A great advisor provides value by building a portfolio that makes sense for you specifically, helping you to understand why you’re investing that way, and providing you with evidence that makes you confident in your new portfolio. A great advisor will also prevent you from making the big mistakes that, according to the most recent DALBAR study, leave individual investors with returns that average nearly 3% less than investors who work with a great advisor. 

Given the dramatic difference between the cost of an advisor and the value that the advisor brings, your best bet is to focus on the value. Meet with multiple financial advisors before selecting yours. Make sure that you are comfortable with them, that they can provide the service that you need, and that they see you as an individual. Some advisors will try to fit you to an existing portfolio, while better advisors will build the portfolio around you. Make sure that the advisor is fiduciary—your best interests should be the only consideration. 

Finally, I will note here what we all know, which is that many functions of our daily life can now be completed virtually, using Zoom and other technological tools. So it is with financial advisory meetings, which can be completed in-person or virtually. In my opinion, there is value to having an advisor who you can meet with personally, even if only occasionally. 

However you select your financial advisor, invest smartly and invest well! 

Larry Sidney is a Zephyr Cove-based Investment Advisor Representative. Information is found at https://palisadeinvestments.com/ or by calling 775-299-4600 x702. This is not a solicitation to buy or sell securities. Clients may hold positions mentioned in this article. Past Performance does not guarantee future results. Consult your financial advisor before purchasing any security.