What Qualities and Credentials Make for a Good Investment Adviser?

As originally published in Worth

A recognized brand, a preferred address with breathtaking lobby views, sentimental television ads, sponsorship of national golf and tennis championships: Such nice things denote a certain cachet, but what should you really look for when choosing an investment adviser?

Unfortunately, the job of getting past all the marketing to determine how an adviser makes investment decisions and serves clients lies with the investor. That said, however, the most important qualifications are straightforward: Your investment counsel should be independent and objective, with a strong team of experienced and credentialed advisers.

As a starting point, look for a firm that will put your interest first and serve you as a fiduciary. All registered investment advisers (RIAs) are regulated by the SEC under the Advisers Act of 1940 and are required to act as fiduciaries for their clients. Typically, brokers are held to a much lower “suitability” standard of care for clients, as they are compensated through the sale of investment products, not by giving advice. Telling the difference can be confusing, as both types may call themselves “wealth advisers,” but these differences are critical. You wouldn’t work with an attorney or accountant who wasn’t acting as a fiduciary, and you should insist on that same standard from your investment counsel.

This requires a little digging on your part. Although fiduciaries must put your interests first, they can also have conflicts of interest, so long as these are disclosed. There is an old Russian proverb made famous by Ronald Reagan during arms control discussions with Mikhail Gorbachev: Doveryai no proveryai, or “trust but verify.” In this case, the best way to verify is to visit the SEC’s website, adviserinfo.sec.gov, to view a firm’s Form ADV. RIAs must disclose conflicts on the ADV Part 2A or on their “brochure.” The required format aims to make disclosures clear and easy to understand. A careful review of that information is the single most important part of your due diligence process. Pay particular attention to fee-sharing arrangements from other activities or affiliations.

The next step in due diligence is to determine the investment skills and qualifications of the investment team. Pay attention to key members of the investment committee. Certain credentials can be good indicators of an individual’s financial and investment knowledge. The CFA (Chartered Financial Analyst) and CAIA (Chartered Alternative Investment Analyst) designations are obtained after rigorous multiyear exams. In addition, client service professionals should have the CFP (Certified Financial Planner) certification, obtained after completing exams covering investments, income and estate taxes, retirement planning and insurance.

Beyond these credentials, an investment adviser should also have a broad range of experiences and backgrounds, often in law, accounting, banking and finance. Such crosstraining enables the adviser to fully understand the larger accounting, tax and legal implications of a client’s particular circumstances and can add real value.

Finally, conduct a personal interview. Ask yourself if the people you are considering understand your goals and objectives. The best advisers are also interviewing you. They know their process and want to ensure that your needs align well with their capabilities and strengths.

Sadly, many clients overlook these simple due diligence steps in their selection process and enter into a relationship with a misunderstanding of their adviser’s incentive structure and obligation. In the end, tickets to the Masters are nice, but what is that really costing you?

First and foremost to consider are the adviser’s independence and technical skills. Freedom from competing priorities puts an exclusive focus on you, the client, and avoids the conflicts of interest that are pervasive in the investment industry.

The material shown is for informational purposes only and should not be construed as accounting, legal, or tax advice.  Altair Advisers LLC is a registered investment adviser with the Securities and Exchange Commission; registration does not imply a certain level of skill or training.  While efforts are made to ensure information contained herein is accurate, Altair Advisers cannot guarantee the accuracy of all such information presented.