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Bill Longstreet

How to choose a financial advisor

Posted on October 13, 2014 Facebooktwittergoogle_pluspinterestlinkedinrss

This article was first published on Talk Magazine Shanghai the 2014 October edition.


When it comes to our money, how well our investments perform is not under our control, but whom we choose to manage our money is. For that reason, you’ll want to search and evaluate all candidates carefully. I have put together some key questions you should ask a potential financial advisor.


How do you bill for your services, and how much do you charge?
I believe this is the most important question when interviewing an advisor as it can make a huge difference in your long-term returns. You typically want to avoid commission-based advisers. Advisers who work on commission have incentives to push a certain life insurance packages or mutual funds if they’re getting a cut of that revenue. More than likely, these products will not be the best options for your savings. If you do meet a commission based advisor, ask them how much they are earning on the product they are offering. Ideally, get it in writing.

Fee based advisors are typically your best option. Fee based advisors either charge a flat fee or an annual fee based on a percentage of your assets under management. They are much more inclined to provide you good advice, as their future earnings are closely tied to the success of your investment account.

Also, besides the fees that are paid to the advisor, make sure you understand all of the other costs associated with the investment, such as platform, transaction and custodian fees. If all fees exceed one to one-and-a-half per cent per annum, then you are likely paying too much.


Does the investment lock up any part of my savings?
Unfortunately, many investors ask this question after the fact and they find themselves stuck in an investment for up to 25 years. There is absolutely no reason as to why you should invest in an account that locks up your money, unless it is a government sponsored retirement account such as an IRA. An investment that has a lock-in has very little incentive to make a return on your money, as they know you are not going anywhere.

In our opinion, lack of liquidity is one of the biggest problems with some of the most widely sold investment products for expatriates in China. By ‘liquidity’, we mean the ability to get cash when you want. Of course, you’ll be told that this lack of liquidity is “for your own long term benefit”.


What is your educational background, credentials or other certifications do you have?
It is important that your advisor knows what they are talking about, so I would confirm the educational background and whether the advisor has CFP (Certified Financial Planner) and CFA (Certified Financial Analyst) certificates. As it is not uncommon for advisors to make up their educational background, I’d ask for some proof that they have the education they are claiming.


What is your investment approach?
You should ask the advisor about his or her investment philosophy. Does the advisor invest in low-cost ETFs, do they prefer to use managed funds, passive investments or do they invest in individual stocks and bonds? Beware of advisors who boast they consistently beat the market. There aren’t a lot of people like Warren Buffet. If you have an initial meeting with an adviser and you hear predictions of market-beating performance, it may be a warning. No one can safely make such guarantees, and anyone who’s trying may be taking risks that you don’t want to take. My personal belief is that advisors should concentrate on an indexing approach by using ultra cost efficient ETFs offered by such companies such as Vanguard, Ishares and SPDR.


What is your performance record?
You should ask any potential advisor how their portfolios have performed over the last several years and ideally ask for some kind of proof. Proof may be in the way of an audited statement or, if this is not available, a couple of client references could provide some insight into the advisor’s performance.


How much contact do you have with your clients?
Some advisors have an initial allocation meeting and then you see them once a year, others might have quarterly overviews, while others would offer some contact once a month. How often you meet your advisor may depend on their investment strategy. If you are following a more passive investment strategy, a yearly check up is all you may need.

Choosing the right financial adviser is an important decision. Spend some time researching and comparing a number of advisers. This will improve your chances of finding the right one for you.


How to chooese a financial advisor





Bill Longstreet has been a financial advisor since 2003 and prior to this were a institutional business development director, specializing in fixed income and foreign exchange markets. Bill has a Master in Business Administration with a concentration in Finance (1999) from the Olin School of Business at Washington University in St. Louis and am a candidate for the CFP (Certificate Financial Planner) qualification. He also holds a Bachelor of Arts with a Major in Economics from Denison University. In his last position before joint Caterer Goodman oversaw $350 million in client funds across a range of currencies and risks profiles.

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