Is your financial advisor more sizzle than steak?


A prospect recently came to our office to compare our firm to a rival that was offering a customized portfolio. As soon as I heard the word “customized,” I was curious.

“When you say ‘customized,’ what do you mean?” I asked.

“They will buy securities for us based on our needs,” the prospect told me.

“Do they do this for everybody?” I continued.

“Yes, they do this for all of their clients,” the prospect told me.

“Well, how big is their research department?” I asked.

This investor said the firm didn’t have a research department. It was a single-person advisory firm.

Just to be clear, there are some large advisory firms that have a fully staffed research department. These people spend the entire day, every day, following the positions that a firm has, and they handle the due diligence. Even these large firms do not have the bandwidth to build customized portfolios. So how can a single advisor do that successfully?

The answer is, it’s not possible. Most financial advisors are deluding themselves—and their customers. Advisors in small practices may believe they can single-handedly follow the markets, build customized portfolios for clients, handle compliance, prospect for new customers and develop talent on their teams.

The truth is, it’s all way too much for one advisor to master, and that shows in the service they deliver. Many clients are, in reality, paying them a fee to guess about what is going on.

Many advisors won’t tell that to you, but deep down they know the truth.

“Be wary of any advisors who say they’re managing client portfolios and running the compliance department—or tackling any other part of the business that you know is a full-time job at a larger firm.”

So how do you find a financial advisor who really delivers value and not vapor? A little research on your part and asking the right questions will ensure there is some substance there.

First, ask how they spend their work time in a typical week. Be wary of any advisors who say they’re managing client portfolios and running the compliance department—or tackling any other part of the business that you know is a full-time job at a larger firm. There is nothing wrong with an advisor admitting he or she exclusively handles client relationships at the firm and that experts on its team oversee other tasks. You generally won’t find the sizzle of a rainmaker and the substance of a research director in one person.

Then ask about the value of the firm’s asset base. It’s my opinion that a firm has to have $1 billion in assets to be able to invest properly in the people, technology and research it needs to stay competitive in the marketplace. A firm that is smaller than that may not be able to deliver real substance unless it forms an alliance with another firm or is acquired by a larger one.

Check out the advisor’s team. Look at the firm’s website to see who is part of the organization and to gauge their level of experience. At a minimum, a firm should have at least one chartered financial analyst with 10 or more years of experience who is running research. It should have a basic infrastructure that includes a comptroller or chief financial officer, a chief operations officer and a chief technology officer. Without these professionals on its team, it will not be able to deliver true value.

Ask them if they ever turn away clients. If he or she says yes, that’s a very good sign. Great advisors will not want to engage with clients who are not open to their advice and who refuse to trust them. I’ve seen bad things happen to people who get greedy or don’t accept prudent financial advice, and I know the relationship will not be successful. I learned over time to say no to them.

—By Ron Carson, founder and CEO of Carson Wealth Management Group.


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