1. None of the advice should be based on the advisor's opinions.
Instead, the advisor should be able to demonstrate that his or her advice is based on what might be referred to as the "science of investing" or "evidence-based investing" -- evidence from peer-reviewed academic journals such as The Journal of Finance. The advisory firm should be able to cite evidence from peer-reviewed journals supporting their recommendations. And the advice should be easily understandable, transparent and make sense.
2. The firm also provide a fiduciary standard of care.
This requires the firm to provide advice that is based solely on what's in your best interests. This differs from the "suitability standard" present in many brokerage and insurance firms. That standard only requires that a product or service be suitable -- it doesn't have to be in your best interest. There's simply no reason why you should settle for anything less than a fiduciary standard. Not one. Unfortunately, most investors are unaware of the difference. They simply assume that an advisor is giving advice that's in their best interest. And that makes them vulnerable to being exploited.
3. Advisors should be "eating their own cooking."
This means investing in exactly the same investment vehicles they're recommending to you. The advisor should be willing to show you his own statement from the custodian holding his assets so that you can verify the veracity any claims. They should also be able to show you that the company's 401(k) or other retirement plans offer the same vehicles they are recommending to you. That doesn't mean that their asset allocations will be the same as they are recommending (because each person has a unique ability, willingness and need to take risk), but the vehicles offered should be identical. If they aren't, don't hire them.
4. The advisor should integrate an investment plan into an overall plan.
This is because financial plans can fail for reasons that have nothing to do with an investment plan, it's critical that the advisory firm integrates an investment plan into an overall estate, tax and risk management plan.
For example, an investment plan can fail because of a premature death or a disability that prevents one from working. It can also fail because of the lack of sufficient insurance, be it life insurance, property and casualty insurance (such as for homes, cars, boats, and for protection against floods and earthquakes), or personal liability insurance. It can also fail because of lack of creditor protection (an issue particularly true for medical professionals). Remember that even if you don't have a large enough estate to have to worry estate taxes, there are many other non-investment issues that should be addressed, such as the need for wills and durable powers of attorney for health and financial matters.
Instead, the advisor should be able to demonstrate that his or her advice is based on what might be referred to as the "science of investing" or "evidence-based investing" -- evidence from peer-reviewed academic journals such as The Journal of Finance. The advisory firm should be able to cite evidence from peer-reviewed journals supporting their recommendations. And the advice should be easily understandable, transparent and make sense.
2. The firm also provide a fiduciary standard of care.
This requires the firm to provide advice that is based solely on what's in your best interests. This differs from the "suitability standard" present in many brokerage and insurance firms. That standard only requires that a product or service be suitable -- it doesn't have to be in your best interest. There's simply no reason why you should settle for anything less than a fiduciary standard. Not one. Unfortunately, most investors are unaware of the difference. They simply assume that an advisor is giving advice that's in their best interest. And that makes them vulnerable to being exploited.
3. Advisors should be "eating their own cooking."
This means investing in exactly the same investment vehicles they're recommending to you. The advisor should be willing to show you his own statement from the custodian holding his assets so that you can verify the veracity any claims. They should also be able to show you that the company's 401(k) or other retirement plans offer the same vehicles they are recommending to you. That doesn't mean that their asset allocations will be the same as they are recommending (because each person has a unique ability, willingness and need to take risk), but the vehicles offered should be identical. If they aren't, don't hire them.
4. The advisor should integrate an investment plan into an overall plan.
This is because financial plans can fail for reasons that have nothing to do with an investment plan, it's critical that the advisory firm integrates an investment plan into an overall estate, tax and risk management plan.
For example, an investment plan can fail because of a premature death or a disability that prevents one from working. It can also fail because of the lack of sufficient insurance, be it life insurance, property and casualty insurance (such as for homes, cars, boats, and for protection against floods and earthquakes), or personal liability insurance. It can also fail because of lack of creditor protection (an issue particularly true for medical professionals). Remember that even if you don't have a large enough estate to have to worry estate taxes, there are many other non-investment issues that should be addressed, such as the need for wills and durable powers of attorney for health and financial matters.
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