You have money you want to put to work but aren’t sure where to start. The first thing to consider is how much investable money you have.
If you’re just starting out and have a few hundred, thousand, or tens of thousands, you might visit a financial adviser first to start a financial plan. However, if you have several hundred thousand dollars, you may require more individualized investment management and advice and seek a wealth manager.
Wealth managers not only keep an eye on your financial roadmap to make sure you don’t veer off course, they can also help with advanced tax management, integration with complex compensation plans, more advanced estate planning, a charitable donation strategy, and even legal considerations, which typically isn’t necessary until you hit a certain level of assets.
Often, people who begin with a financial adviser grow into needing more specialized wealth management. However, that may not require you to switch to a new adviser. Some professionals who refer to themselves as financial advisers can still do what wealth managers do so talk to your adviser first.
Education and loyalty are most important
Whether you decide to go with a financial adviser or a wealth manager, there are some crucial things to understand about the industry. Your biggest decisions on whom to employ should be based on their knowledge and responsibilities.
“Insist your investment professional hold a certification, not a license, that evidences a higher degree of education,” Ronald Rhoades, director of the personal financial planning program in Western Kentucky University’s Gordon Ford College of Business, said.
Even that is easier said than done because there are hundreds of certifications, but he recommends looking for advisers who are Certified Financial Planners or Chartered Financial Analysts. Both require passing a rigorous exam on topics such as financial planning and investments.
You also want someone who’s “honest and upfront on how they’re compensated and what (their) incentives are,” said Michael Finke, director of The American College Granum Center for Financial Security.
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Tips for finding an adviser who will be honest and loyal to your needs:
“Audition more than one,” Finke said. “Don’t just go with the brother-in-law who may or may not be the adviser you’re looking for.”
Seek written confirmation you’re working with a fiduciary. Fiduciaries are always required by law to act in a client’s best interest. Some aadvisers may work for a large firm like Fidelity that requires them to be a fiduciary in investment advisory services but not as a broker that executes trades. So be sure to understand your agreement. A non-fiduciary adviser may recommend investments or products that pay them a bigger commission, which would cost you more, rather than ones that would serve you best. “Where the conflicts of interest are either numerous or severe, avoid the relationship,” Rhoades said.
Ask for a commitment to the “prudent investment rule.” That requires the manager to diversify, minimize fees and balance income production and capital appreciation. All 401(k)s are already governed by this rule under the Employee Retirement Income Security Act but “most investment accounts, including many IRA accounts, require the portfolio manager to have only a ‘reasonable basis’ for investment decisions,” Rhoades said. “By requiring adhering to the prudent investment rule, a much higher degree of skill is required to be applied.” Generally, any adviser who truly adheres to these higher standards shouldn’t have an issue with assuring you in writing.
Ask what strategies are being used to minimize long-term taxes on your returns.
For those who already have investment advisers, consider seeking a second opinion, every couple of years.
“The fact of the matter is investment portfolio management – done well – requires a very high degree of skill and experience,” Rhoades said. “An excellent portfolio designer and manager often has years of education and experience, before becoming really good at it.”
Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at email@example.com and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.
This article originally appeared on USA TODAY: Choosing a financial adviser or wealth manager? Here’s how to decide.