Helping a client

Selecting an
Investment Adviser

Helping a client select an investment adviser is something CPA/financial planners are frequently called on to do. But what questions should the CPA and the client ask each prospective adviser to establish his or her credentials? Here is a checklist of information that will help in the process of choosing an investment counselor whose investment style and performance best match the clients goals and objectives.

What securities registrations, academic degrees, sales licenses and professional designations does the adviser have?
How many years of experience has the adviser had managing money for similar clients?
Other than the adviser, which staff members will provide services to the client? What will their responsibilities be?
Will the prospective client be permitted to speak to some of the advisers current clients to ask about their experiences?
How will the adviser be paid? Does he or she charge fees, earn commissions or get compensated in some other manner?
Will the clients account be subject to any other fees or expenses, such as loads or liquidation fees?
Does the adviser have any conflicts of interest? Do certain investment products pay a large commission or make the adviser eligible for prizes, trips or bonuses? Does the adviser accept "soft dollar" compensation? (In the typical soft dollar arrangement, an adviser routes client brokerage orders to particular brokers and, in exchange, gets free research services.)
How will the adviser learn about the clients financial situation to ensure that investment recommendations are in line with the clients needs and objectives?
What is the advisers investment philosophy? How does he or she select investments, time markets and diversify investment portfolios?
What historical rate of return has the adviser earned for clients over the last 1, 3, 5 and 10 years? What risk levels were used to achieve those returns? Were performance figures verified by an independent auditor?
How much risk will the client be exposed to? What will the adviser do to reduce the level of risk?
Will the investment adviser work closely with the clients other advisers to develop the portfolio? Will he or she provide tax information to the CPA and work with the accountant on yearend tax planning?
Will the adviser prepare a written investment policy statement including the clients goals, current asset allocation, estimated portfolio rate of return and risk exposure?
What criteria does the adviser use to judge proposed investments? Is this policy in writing?
Does the adviser develop customized portfolios for each investor?
Will the adviser ask the client to grant discretionary trading authority?
What kind of investment performance reports will the client receive? How frequently? Does the investment advisers performance reporting comply with Association of Investment Management Research standards? Will the client receive reports that compare actual performance with his or her goals? With established benchmarks?
Who will be the custodian of investment funds? Will the clients money be commingled with funds belonging to others?
How will disputes between the client and the adviser be resolved?
Source: American Institute of CPAs personal finance planning division.


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