Selecting an Investment Advisor

Selecting an investment advisor can be a difficult challenge. There are many firms across the country and around the world offering these services, each with its own unique philosophy and style. It can be hard for an individual to make distinctions among firms and to decide which one is best suited to his or her needs and circumstances. This difficulty was highlighted by Claude Rosenberg in his book, Investing with the Best (John Wiley & Sons, Inc., 1986):

“Finding the best person or the best organization to invest your money is one of the most important financial decisions you’ll ever make. It is also one of the toughest. The right manager for someone else may not be the right manager for you, nor can you reasonably expect to find many objective, or even reliable, sources to help you narrow your choices. You will be bombarded with figures, charts, and statistics that seek to sell you on each adviser’s services… The sad fact is that too often you cannot even believe what has been presented to you”.

We recommend multiple resources to prospective and current clients as they navigate the process of choosing and ultimately working with a financial advisor. The first of these is the above-cited text. Investing with the Best includes important information on how to have a successful relationship with your investment manager, including a number of guides, questionnaires, and templates to assist you in your evaluation, selection, and monitoring process.

Perhaps the most critical element in a successful advisor/client relationship, though, is the client him/herself. This is why we also recommend Charles Ellis’s Winning the Loser’s Game, Fifth Edition: Timeless Strategies for Successful Investing (McGraw Hill, 2009). This short, highly readable volume provides especially valuable information on the importance of defining an investment policy and then implementing it consistently. As Ellis states:

“To fulfill their responsibilities to themselves, clients need three characteristics: (1) a genuine interest in developing an understanding of their own true interests and objectives, (2) an appreciation of the fundamental nature of capital markets and investments, and (3) the discipline to work out the basic policies that will, over time, succeed in achieving their realistic investment objectives”.

Finally, for a dose of humor as one navigates the financial advising process, we recommend Extraordinary Popular Delusions and the Madness of Crowds by Charles MacKay, LL.D (Simon & Schuster, 1841). This informative, funny collection of popular delusions, from Alchemy to Tulipomania, has become a classic – a study of mass manias, crowd behavior, and human folly. As MacKay says, “Every age has its peculiar folly; some scheme, project, or fantasy into which it plunges, spurred by the love of gain, the necessity of excitement, or the mere force of imitation”.