If you’re looking to hire a successful financial advisor, Doug Black would like to offer some perspective: Nearly all advisors start with zero clients, he says, and those who rise to the top do so in no small part due to their winning personalities.
“You should assume that the person you’re talking to is going to be charismatic,” says Black, the founder of investor advocate firm SpringReef. “You need to dig underneath that charisma to find out the facts.”
Strong interpersonal skills are indeed table stakes for succeeding in the wealth management profession, but in ranking advisors, Barron’s emphasizes the experience, technical expertise, and ethical track records that suggest the ability to deliver authentic value.
Our rankings can be a big help in your hunt for a financial advisor. This special report includes our annual Top 100 Financial Advisors, plus two other rankings focused on advisory teams, increasingly the center of the industry. For families of substantial means, there’s the Top 100 Private Wealth Management Teams. For pension funds, endowments, and other organizations, there’s the Top 100 Institutional Consulting Teams.
All of our advisor rankings are based on a combination of quantitative and qualitative data. We measure assets and revenue because those are important indicators of client satisfaction—clients vote by entrusting their savings and paying the fees, often a percentage of assets under management. We also measure a wide range of qualitative data aimed at capturing the resources that advisors devote to creating a high-quality experience and assessing their actual track record of serving clients well. The qualitative measures include regulatory records, team resources, work experience, and advanced credentials.
Read More Top 100 Advisors for 2022
Ideally, advisor selection starts by whittling down a self-selected field of candidates based on factors like geography, typical client type and size, and service scope. Many consumers use the shortcut of referrals from friends or colleagues, but it’s advisable to consider multiple candidates.
Black, a former high-ranking executive with UBS Wealth Management who now helps individuals and institutions select advisors, recommends starting with firm type. The big Wall Street brokerage firms, known as wirehouses, have advantages and limitations that other types of practices, such as independent registered investment advisors, don’t, and vice versa. For example, wirehouses typically offer a broad range of services, from investing to commercial banking to investment banking. But independent RIAs typically operate with fewer conflicts of interest, says Black.
Match firm type with your family’s unique circumstances, he advises. “Each family has varying degrees of needs around the investment process; some require significant financial planning, and some require family-office services.”
Then comes the hard part: choosing an advisor from the shortlist. The way that advisors respond when asked about investments, planning services, team structure, and costs can help reveal which advisor or team is the best fit.
Evaluating Investment Skill
Strong investment capabilities are front and center for many people shopping for an advisor. Because investors’ goals are different, their investment portfolios tend to be at least somewhat customized. But advisors are generally able to provide the track record of their firms’ model portfolios, which are off-the-shelf asset allocations used as cornerstones of client portfolios.
Advisors who are capable investors may be in higher demand as we move into an era of rising interest rates, says Vincent Lumia, head of field management for
Morgan Stanley Wealth Management
“It’s easy to say after a decade-plus of really good returns that investing is a bit more commoditized,” he says. “I think the current environment may pressure-test that.”
Because past performance isn’t a guarantee of future returns, it can be helpful to ask advisors to describe their investment process, says Jim Hays, president and CEO of Wells Fargo Advisors. “From that question, you’ll be able to elicit whether they have a process—whether it’s customized or whether it’s one-size-fits-all,” he says. “And then, as a follow-up question, ask, ‘How has your performance been against client goals?’ ”
Prospective clients should ask advisors frankly about conflicts of interest. Conflicts don’t mean that your advisor is looking to fleece you, but it’s critical to understand the temptations an advisor faces and how he or she deals with them. For example, one may earn higher fees for recommending a certain investment solution when a less-expensive alternative exists.
Probing Planning Services
Investing has traditionally been advisors’ marquee service, but with the long bull market having made positive returns something of a commodity, they’ve pivoted to highlighting their planning capabilities. Planning services can range from calculating how much you need to invest in order to fund your desired lifestyle in retirement, to recommending strategies to minimize tax liabilities as wealth is transferred to heirs. Before hiring an advisor, you should make sure they have ample experience meeting planning needs that match your family’s.
While many one- or two-person advisor practices still exist, advisors have been rapidly migrating to team structures in recent years. Teams can include multiple client-facing advisors, planning and investing specialists, and a deep bench of client-service professionals. And the way teams are organized and compensated can affect client experience.
“Team structure is not only important in terms of clear roles and responsibilities, but also in terms of incentives that match up with the expected client experience,” says Jason Chandler, head of
UBS Wealth Management USA
noting that his firm’s compensation structures are based on team performance.
To expand their available subject-matter expertise, advisor teams may tap the resources of unaffiliated teams within their firm. Such cooperation has become far more common with the adoption of videoconferencing, says Morgan Stanley’s Lumia. “The technology has enabled advisors from all over to partner with each other in ways that they probably wouldn’t have thought was possible before Covid,” he says.
Every prospective client wants to know what they’ll be charged, but of course whether the price is right depends on what you get for your money. “I find that the best way to ask the question is, ‘What do I receive in value for the fees I’m paying?’ ” says Chandler. Be sure that the advisor explains every fee you’re likely to pay, including financial-planning, brokerage, investment-management, and custodial fees.
“After the first couple of conversations, the [prospective] client should have a clear, concise understanding of all the fees that they would pay, and the value associated with those fees,” says Lumia.
Beware of fees explained in terms of “basis points,” advises Black. Each basis point is one hundredth of a percent. Rather than accepting financial jargon, ask for a translation into dollar terms, Black says.
Depth and Diversity
With the average advisor pushing 60 years old, consumers should ask what would happen if the advisor weren’t able to continue. “Succession planning is a really important question,” says Hays. “I think you should ask the advisor directly, ‘Who would be your successor if you decided to retire today? What are their competencies and skill set versus your competencies and skill set?’ ”
The succession conversation can provide insights into whether an advisor team has a deep and diverse bench of talent, adds Chandler. “Clients tell me that they perceive value in working with a team that is diverse in opinions, diverse in backgrounds, diverse in experience,” he says. Diversity in race, ethnic backgrounds, and gender can also signal to sophisticated clients that a practice is high caliber.
Diversity of age is especially important for families with multigenerational wealth. Cerulli Associates estimates that families will bequeath $72.6 trillion in assets to heirs by 2045. “During this period of massive wealth transfer, clients are looking for multigenerational advisor teams who can be with them over not just decades, but generations,” says Andy Sieg, president of Merrill Lynch Wealth Management.
Advisors should show a willingness to bring up unpleasant but important topics, says Lumia. “When I have conversations with clients,” he says, “they compliment some of our best advisors by saying, ‘They forced me to have the uncomfortable conversations.’ ”
Finally, ask about their average client tenure. Advisors’ ability to retain clients over the long term says a lot about whether they can back up their sales pitches. “Some people are really good at bringing clients in the door,” says Black. “The problem is that some aren’t so good at keeping them.”
In the end, the choice among equally qualified advisors may come down to a gut feeling, says Hays. “Advisor/client relationships are most successful when communication is open and honest” and displays a high emotional quotient, says Hays. “So, if you find that you’re comfortable talking with a prospective advisor, take note. The EQ can be just as important as the IQ.” B
Write to Steve Garmhausen at [email protected]