Financial Opinion and Insights

Choosing An Advisor

Jim Lorenzen, CFP®

Jim Lorenzen, CFP®

What To Ask – and What NOT to Ask.Having been in the advisory business as long as I have, you can imagine how many people I’ve talked with over the years – either on the phone or in person at various functions, events, and social gatherings.  And, doing what I do for a living, you hear just about everything, particularly since I do this day in and day out.

Last week’s IFG/Morningstar Perspectives Newsletter has a brief item on the last page on how to choose a financial advisor; but, I’d like to give you some tips that weren’t in that newsletter and I think they’ll help you even more.

What many people don’t realize is that not everyone is a good advisory client.    All advisors want new clients, to be sure; but, top advisors are careful who they’ll accept because, after all, we’re talking about what could be a long-term ongoing relationship – my typical client, for example, has been with me for more than a decade and many others more than fifteen years.  Many know my wife and we know their families.    So, since these relationships tend to be, and should be, ongoing, it’s important to make sure the `fit’ is right.

Many advisors who simply sell product may not be so particular; but, top fee advisors who don’t sell products or make commissions know it’s about possibly establishing a long-term relationship.   They’ll likely be as careful in the selection process as the prospective client.  

Here are some things good advisors will listen for in early conversations; things that will tip him or her off about who s/he’s talking with:

First, what NOT to ask.  These are the things I hear from people who truly believe they know what they’re doing but whose questions are simply inconsistent with that belief.  Don’t ever ask these; they will not help your case if you’re trying to impress a `seasoned’ advisor.

  • “What kind of return do you get for your clients?”.  Seasoned pros don’t have a `return’ number, and here’s why.  Advisors handle a variety of clients from 80-year-old widows who care about income to wealthy individuals who are concerned only with preserving purchasing power and providing for a grandchild’s education.  Some are concerned with taxes while others are concerned with meeting long term objectives.   Anyone who’s truly done any real planning with a professional should know the term `risk-adjusted return’, which means that there is an `optimum’ return for a diversified portfolio for each unit of risk assumed – and everyone has different attitudes about risk.   The question assumes everyone has the same objectives , same tax issues, same time frame, same assets, same income requirements, and has the same risk profile.   The question shows this person thinks everyone is a `broker’ and has never really seen a real plan.
  • “Where do you think is a good place to put my money right now?”  This is absolute proof this person does not have a long-term, written plan with an Investment Policy Statement (IPS) defining a long-term investment discipline designed to meet personal long-term goals.  This question tells me this person does need help and might be a client candidate.    I’ll usually respond by saying, “It depends, what is your purpose for your money?”   Most people don’t even think about that.  Purpose is different from goals.   That answer, plus other things I hear, will generally either confirm or disqualify this person as a serious candidate.  Candidates will answer with a genuine, “What do you mean?”  Most will answer with, “I just want to make more money.”   Clever, huh?
  • “What do you do that’s different?” Different from who?  See the above question.  Compared to some, I could write a book.   Compared to other quality non-conflicted advisors, maybe nothing.  Who knows?  It depends on what and who you’re comparing.  Again, this question tells most good advisors that this person really doesn’t even know what s/he’s looking for.
  • “How do I know you’re any good?” The fact they never ask that of their doctor, dentist, CPA, or estate planning attorney automatically proves they’re not seeing the advisor as providing guidance on a proven long-term disciplined process as much as they see the advisor as an investment provider.  The danger is simple:  If that’s what they’re shopping for, that’s what they’ll get; and, it’s not what they usually need.   Strategic Planning and portfolio guidance is a process far different from picking winning investments – good luck with the latter.  The truth is, they just don’t know what else to ask.   The short answer to the question is (1) experience and (2) credentials.   The CFP, ChFC, and similar credentials both have education and experience requirements, and extensive coursework followed by rigorous exams.  The CFP Board’s exam, for example, is a ten-hour exam given over two days, twice each year on identical dates in a handful of selected cities.  If a quality advisor believes your serious and a good match, s/he will furnish you with a few references, but no advisor wants clients bothered by a lot of calls from people who can’t decide to decide.

That’s enough.  We don’t want this to go on forever.  So, what should you ask?  Here are a few questions that your potential advisor should be willing to answer – in writing – along with my own answers:

  1. Are you held to a fiduciary standard in all dealings with me and my financial affairs?  Will you acknowledge that status in writing?Yes.  The Independent Financial Group embraces fiduciary status and will acknowledge this status in writing.  Fiduciary status is important.  It means will they be legally bound to put your interests first – a higher standard than `suitability’  – and will they accept this status for BOTH the planning process AND the investment selections?
  2. Do you disclose all conflicts of interest, both actual and potential, that exist or might exist in my relationship with you?The Independent Financial Group receives no payment from any investment or other service provider.    Disclosing doesn’t make conflicts right.  Avoiding them does.
  3. Do you forego any type of commission-based compensation in favor of receiving all compensation via fees that are fully disclosed in dollar terms?Yes.   Refer to #2, above.  IFG compensation is `revenue-neutral’, meaning it isn’t affected by the course of the plan or the investments or managers chosen.  Disclosing in dollar-terms is key.  Is there hidden compensation you’re not aware of from other service providers?
  4. Do you provide full service financial planning services as well as investment advisory services?Yes.  A client, however, would be wise to realize that the best comprehensive financial planning is usually the result of a collaborative effort that includes the client’s tax professional, estate-planning attorney, as well as the financial planner, with the client’s involvement at every stage.
  5. If you provide full service, comprehensive financial planning services, are these services performed by individuals that have obtained the CERTIFIED FINANCIAL PLANNER™ (CFP®) certification?Yes.  James Lorenzen is a CFP® , as well as an Accredited Investment Fiduciary™ (AIF®) granted by the Foundation for Fiduciary Studies in association with the Katz Graduate School of Business, University of Pittsburgh.  Experience: 20 years with clients located in New York, Florida, and California.
  6. Have you ever been disciplined by regulatory authorities?  Do you have a clean compliance record.  How can I check?   20th year and never an issue.   I’m proud of having a clean compliance record.  You can see for yourself by searching James M. Lorenzen or The Independent Financial Group at www.adviserinfo.sec.gov.


You probably noticed I didn’t spend a lot of time on experience, etc..    Even though I’ve been doing this for twenty years, there are many less experienced advisors who are very good – and others more experienced who I wouldn’t trust with pocket change.   Some newer advisors may lack experience; but, they have access to others with vast experience, while at the same time bringing a strong desire to truly be of help as they begin their careers.  I wouldn’t reject anyone on experience alone.  Besides, if they have credentials, most of the prestigious ones have experience requirements built-in.   Let’s  face it, newer doctors can be very good, why can’t advisors?

Hope this helps!



Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER™ and in his 20th year of private practice as Founding Principal of The Independent Financial Group, a fee-only registered investment advisor with clients located in New York, Florida, and California.  He’s been a headline speaker at conventions throughout the United States, Canada, and the U.K. and has appeared in `The Journal of Compensation and Benefits’, as well as in The Profit Sharing Council of America’s `Insights’.    Jim has also appeared on American Airlines’ `Sky Radio’, heard on more than 19,000 flights.  IFG does not sell products, earn commissions, or accept any third-party compensation or incentives of any description.  Nothing contained herein should be regarded as tax or legal advice and the reader is urged to seek competent counsel to address those issues.   The above represents the author’s opinion and should not be regarded as investment advice which is provided only to IFG clients upon completion of a formal financial and investment plan.   For questions or comments, you can reach Jim at 805.265.5416 or through the IFG website, http://www.indfin.com.