3 Things To Keep in Mind When Choosing a Financial Adviser

If you rely on a financial adviser for building wealth, you better check these three areas of concern when it comes to adviser-client relationships.

Aug 17, 2014 at 9:00AM


Photo Credit: Lending Memo.

Some investors without a background in finance might seek out professional assistance when it comes to investing. This is reasonable, as the capital markets are full of minefields that require careful navigation.

For other investors, the need for investment advice from a qualified financial advisermight arise with a certain amount of investable assets.

Relationships with financial advisers are not without complication, though, and investors should carefully examine a professional's qualifications, as well as other issues.

Issues with financial advisers range from hidden referral agreements to the appropriateness of specific investment recommendations, both of which can negatively impact the investor's portfolio.

Investors should particularly consider the following three areas that have the potential to adversely affect both the relationship with the financial adviser and the return performance.

1. Referral agreements
This is a tricky subject, but one that can be navigated with proper disclosure.

Financial advisers should generally receive a flat fee for their investment guidance. However, some might recommend certain investment products for which they receive kickbacks or sale commissions.

A hidden referral agreement, of course, is a serious breach of trust. Such relationships must be disclosed in order for the investor to get a proper picture about the underlying incentive structures that influence the adviser to make certain investment recommendations.

2. Asset allocation
Every serious financial adviser will never suggest that clients invest a considerable amount of funds in any particular security, whether it's a stock or a bond.

Using all kinds of asset classes in building a portfolio is a prudent investment approach that takes advantage of the concept of diversification.

Diversified portfolios exhibit much higher resilience in times of erratic market behavior. The recommendation to construct a diversified portfolio is a sign that your financial advisor takes seriously his or her task of providing value-adding service.

3. Competence
Topping the list of things investors should grill their advisers about is their educational background.

The higher the qualification and educational achievements of the financial adviser, the better. Look for investment-related credentials such as certified financial planner or chartered financial analyst, which signal a solid understanding of both capital markets and portfolio construction.

Both qualifications ensure that the person talking about your financial future really understands the matter at hand.

The Foolish takeaway
The adviser-client relationship can be complex. However, the issues can be resolved by insisting on proper disclosure.

If no disclosure is made, investors should raise the subject with the financial adviser directly in order to make sure that you, the client, receive the best, unbiased investment advice possible.

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4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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