How to Select an Adviser

Identify Your Investment Goals

You should first identify your investment goals and then choose an investment adviser who is most capable of helping you meet those goals. If you are an individual investor, your investment adviser should understand your goals and your particular financial situation and make recommendations that are suitable for you. Some important factors to consider in defining your goals include age/time horizon, income, taxes, wealth, and risk tolerance.

Considerations Regarding the Services You Are Seeking

You should consider what level of investment services and advisory services you need. For example, some advisers provide clients with a pure investment management relationship while other advisers provide clients with sophisticated financial planning and advisory services in addition to investment management services. You should consider the nature of the client relationship that you would like with an investment adviser, including the level and form of communication you would like to maintain with the adviser. Decide whether you will give your adviser discretionary authority over your investments or merely provide you with investment suggestions for you to follow.

Questions to Ask

After identifying your investment goals, you should interview investment advisers to decide which one would best be suited to help you achieve your goals. Asking detailed questions will help you determine your comfort level with the prospective adviser on both a personal and professional level. Some questions you might ask include:

  1. Are you a fiduciary, i.e., are you required by law to place my interests ahead of your own at all times? Are you willing to acknowledge your fiduciary duty in writing?
  2. How are you paid? Do you make more money if I buy a particular stock, bond, or mutual fund over another investment? If so, would you still recommend this investment and why? Does your firm hold prize contests for sales?
  3. What products and services does your firm offer? Are recommendations of products and services limited? If so, why?
  4. What are the potential conflicts of interest surrounding the investment advice that you will give me? What policies have you instituted to avoid or at least mitigate any such conflicts?
  5. What is your investment philosophy? How does your investment philosophy differ from other investment adviser firms?
  6. How often will we meet? How often will I receive written reports about my portfolio?
  7. What happens when you place an order for my account? Could I get a better price (cost and/or commission) if you sent my orders to a different market or broker to be executed?
  8. Describe your typical client. May I contact your long-term clients as references?
  9. How long has your firm been in business? What are the qualifications of the investment and professional personnel in the firm?
  10. With respect to the person who will manage my account, what experience do you have, especially with people in my circumstances? Where did you go to school? What training do you have in the investment management field? What is your recent employment history? What other firms have you been registered with? What is the status of those firms today? What licenses do you hold?
  11. Where does your firm invest its own money? Is it invested similarly to that of your clients?
  12. Have you ever been disciplined by any government regulator for unethical or improper conduct or been sued by a client who was not happy with the work you did? How many lawsuits or arbitration cases have been filed against you and against your firm? What were the outcomes?
  13. Can you provide me with a copy of the registration documents that you filed with the SEC? For registered investment advisers, ask for a copy of Parts 1 and 2 of their Form ADV. For investment adviser representatives of the adviser, ask for a copy of their Form U-4.

For further information, please contact the IAA:
Investment Adviser Association
1050 17th Street, NW, Suite 725
Washington, DC 20036-5514
(202) 293-4222

Compliance Workshop - New York
Compliance Workshop - Atlanta
Compliance Workshop - Denver
Compliance Workshop - Houston
Compliance Workshop - Los Angeles

Find out how you can join the more than 600 SEC-registered firms that are members of the IAA and start accessing our full range of advocacy, compliance and educational resources.