Financial Advisory 101



Given the high number of people in Charlotte seeking financial advice from advisors its worth discussing the various approaches wealth advisor firms take so people can make more informed choices when deciding to seek advice. My best advice overall is to ask a lot of questions even if you feel they are simple ones and followup and challenge the answers. Many advisors are trained salespeople so they know what to say & how to say to appease you vs telling you what you need to know. Assure that answers are backed up with data & numbers vs opinion.


TIP #1: discuss exactly what the portfolio consists of to determine your TOTAL costs (included advisor fees or operating fees associated with the portfolio). First lets discuss Fees: most advisors these days are Fee based meaning they charge based on a percentage of assets (percent of AUM) they manage for you. They may range from under 1% to 1.5% these days. In the old days they took commissions based on what was bought or sold and some still do when it comes to selling insurance. Additional "operating fees" go on top of that for such things as trading costs and underlying fees based on the types of investments that comprise the portfolio. Utilizing mutual funds and third part manage funds are usually the most expensive, then ETFs (baskets of stocks) then with no fees individual stocks.


TIP #2: ask what they offer to address your specific needs. Next lets look at services offerings & structure. There are advisors affiliated with other broker/dealers or work directly with them that tend to provide a plethora of services and those that are independent who are RIAs (Registered Investment Advisors). Some offer soup to nuts from asset management to planning to insurance to business services. I will reiterate, despite an advisor saying they offer a service make them back it up with specifics on their offerings either thru hard data or case studies or even referrals. In addition, ask who actually does the work: is done in house or outsourced. The more hands that touch your finances can add complexity.


Tip #3: understand an advisors backgound which can bias offerings. Advisor backrounds are important because they tend to explain products being offered vs those addressing your need. Often, expertise in an area or the type of firm it is (such as insurance based) can dictate they type of solution offered. Advisors with insurance backgrounds tend to be based to using insurance products awhile others offer unbundled products like portfolio management or private equity products. I'm personally not a fan of all these credentials (CFA, CFP etc) after advisor's name as they tend to be there more for impressing you then actual proof of expertise. Anyone can pass a test, but that is not a substitute for experience. So weigh book smart vs street smart or experience.


Tip #4: related to Tip #2 is to understand how they manage your money. There are variety approaches to this with larger firms having centralize investment committees that advisors rely on to design your portfolio & manage your money. Others utilize mutual funds or third part managers to decide exactly what your portfolio consist of. Still others use canned portfolios from their own firm or from outside firms. Ultimately, the method may determine TOTAL fees paid since outsourced portfolio management & design could add cost and complexity in managing your money. In addition, some advisors are hands off meaning they don't make changes often to your portfolio while others are hands on actively managing the portfolio. Active managers tend to design their portfolios themselves. Ultimately, cost & performance determine the right mix of managing your money so quantify both BEFORE signing on to an advisor. Many advisors can back date their portfolio designed for you and compare it to what you have to see cost vs performance. Lastly, some advisors customize portfolios across all their clients which may mean less time overseeing your portfolio since each is different that could add a lot of time maintenance wise across the client base.


In the end armed with more information you can make a more informed choice when selecting an advisor.


At Brecken Capital Advisors we actively manage clients assets through the use of 7 proprietary model portfolios designed to match each client's risk tolerance with our views of the market & economy. Additionally, we transparently measure both cost & performance for our clients. For more insights see our website and disclosures found there at BCA.

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