Choosing a Financial Advisor

Below are five important considerations when choosing a financial advisor for your investment portfolios and financial future.


What is the advisor promising? If an advisor promises you anything more than that they will do their best, run away. An advisor needs to explain how he/she will invest for you. However, no advisor should promise or imply specific results. Markets are always more powerful than advisors and money managers. Thus, if something sounds too good to be true, it probably is.

If the advisor offers historical investment results, understand those results may be largely meaningless. They are often based on numbers that are hypothetical rather than actual. In any case, the future will be different than in the past. Ask how the advisor will handle risks and opportunities in the future. Ask how often they adjust portfolios as markets and economies change.


Do you understand the strategy for protecting and growing your assets? If a strategy is too complex for you to understand or if the advisor can’t explain it easily, run away. The more complicated a strategy, the less likely the advisor will understand it or can control it when markets do the unexpected. (see Long-Term Capital Management) There are very few rocket scientists in the world. Most of them are building and guiding rockets.

An advisor should have the ability to purchase the most appropriate asset and security types, not just their company-sponsored securities. They must always understand what the ramifications may be when they invest your money. If they don’t fully understand an investment type (which is possible given the multitudes today), they shouldn’t invest in it. Despite my background in mathematical economics and options trading, it is still difficult to decipher the inner workings of some exotic structured products. As a result, I avoid those securities and find simpler, safer ways to try and create the desired outcome.

There is no guarantee that your results will be as intended, but the strategy should be understood by everyone.


How does the advisor get paid? Generally, investment advisors are paid a fee (some small annualized percentage based on assets) for managing your investment portfolio. Their incentives are generally aligned with yours, which is to keep your assets safe and growing. They may solve financial issues for you and work with other trusted advisors (attorneys, CPAs, etc.) for your benefit.

A financial advisor may sell products or securities, and earn commissions for doing so. He/she may also get paid for managing your investment portfolios. Neither type of advisor is necessarily better. However, you must understand the differences, because those differences affect the incentives for your advisor. Those incentives may affect the risks, returns, and expenses in your portfolio.

Paying an investment advisor for service means that if you are unhappy with the service or investment results, you can find someone else. That is as it should be. Unfortunately, many sales products (e.g., fixed annuities and structured products) charge large, built-in, upfront fees and lock you in for extended periods. Be careful when a financial advisor pitches you something where they are paid a lot up front and you may be charged a lot more to sell it.

Advisors should always try to solve your financial issue, not theirs.


How does an advisor spend his/her work hours? Does the advisor spend hours managing investment portfolios and solving financial issues for clients? Or does the advisor spend most of the day prospecting, trying to find new clients? If an advisor is responsible for the safety and growth of your assets, which would you prefer?

Obviously, every advisor searches for new clients where there may be a mutual benefit. That’s fine. However, if your advisor is not responsible for managing your assets on a day-to-day basis, do you know who is? How quickly will that outsourced investment manager change course when the market does? Is that manager even qualified?

Advisors invest for a period of time suitable to each individual client, often ten to fifteen years. I believe they must also make investment decisions over the short term, days and weeks. Considering the drastic drops in stock market prices in 2000 and 2008, there can no longer be “set and forget” policies regarding investment portfolios.

Clearly, long-term portfolios can drop precipitously in the short term. Those drops can affect long-term results and your ability to retire as you desire. Adjusting portfolios to changing environments can be critical to long-term investment success.

No one can tell the future, nor know when exactly to buy or sell. You simply want someone who thinks about your portfolio every day and will make decisions for you. Even when the decision is to stand pat, that needs to be an active decision by the advisor. So, keep your eye on the short-term, too, and on an advisor who will do the same.


What is the advisor’s specific experience in investment markets? Young advisors are often at a disadvantage because they haven’t experienced the ups and downs of markets and cycles. However, they may also be more aggressive and adventurous than experienced advisors. If an aggressive strategy suits your risk profile and needs, a younger advisor may be right for you.

Experienced advisors have seen good and bad markets, and likely remember the factors that made them so. Although the reasons for market volatility change, an experienced advisor may understand the factors and potential consequences more than a newer advisor.

However, one’s experience encompasses much more than simply time served. If a young advisor worked on a trading desk or managed portfolios and risk before, while a long-serving advisor is mostly sales-oriented, the younger advisor could be more qualified and just what you need.


Hopefully, this discussion has given you valuable concepts to understand when choosing your next financial advisor. Of course, none of the above are hard and fast rules. They are my opinions, based on my experience.

In short, consider everything you can learn about a financial advisor before entrusting your investments to him or her. If the advisor isn’t forthcoming with the information that you need, find another advisor. There are a lot of us out here.

Investment Help

If you have $200,000 or more in investable assets, let’s analyze the risk/reward characteristics of your portfolio. Call me at (321) 574-8052 or email me by clicking here.


Dean Erickson, CFA
CEO, Bionic Capital LLC

For those of you interested in low-cost Robo-advisors, click here to learn why they may let you down when you need them most.

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