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As a person begins the process of searching for the right entity to handle one of their most precious assets, the advisory landscape might appear to be very similar. Things that are easy to differentiate for industry insiders are not easily discerned by most who are looking for help. Interviewing a handful of advisors can be overwhelming and a daunting task. What questions do I ask? What are the answers I need to hear? Whom do I trust? How do I trust?

I could write pages about all the small nuances of this industry, but I feel there are 4 main criteria that should be included in the vetting process, and one specific criterion that should be cast aside.

1. Independence: Is your firm independent from any parent organization or subsidiary? Is it owned by the employees and or certain key employees? If the firm is beholden to no other entity, then the firm is beholden to its clients. Working for what is in the best interest of the client will then be the only focus.
2. Separation of Duties: Do you have specialists for the different operations within the firm or is it just a couple people that do everything? Managing money requires a high degree of focus and attention to detail. A firm who has specific members who exclusively focus on research and investment decision making, another group who has specific focus on client service and communication, and another group that handles operations is a must. There are only so many hours in a day and wearing too many hats will lead to a degradation of the overall client experience.
   I’ll give you an example: Let’s take an employee whose main focus is research. On a daily basis there is always a flood of news about market activity. This information has to be digested and interpreted. If a researcher were also tasked with talking to clients, completing paperwork, and other administrative duties, this would leave less time for researching. Afterall, the research function is probably the most important division within the firm.
3. Stability and Incumbency of Decision Makers: Have the people making the investment decisions been stable and together for a long time? Nothing can be more frustrating than a revolving door of key people. You can also make a reasonable assessment of the type of business they run by the tenure of their employees.
4. Avoid Product Usage and Product Sales: The point of managing a person’s money is to have it invested as efficiently as possible. For every product you purchase there are fees that are extracted. The more fees you pay, the less ends up in your pocket. Product selling comes highly disguised (by the advisor), and can also invite a conflict of interest.

One of the criteria that I have heard for decades as the reason I hired my advisor: “He/She is a nice guy/gal….always in a good mood”. You must cast aside the personality bias during the vetting process. You are hiring a professional service, not a new best friend. If you were having a major medical procedure, would you want the nicest doctor or the most qualified? You must look past the veneer and ask the real questions. You and your money deserve answers.

Trust but verify. -Ronald Regan

 

Horse Sense. Street Smarts. Don W. Hodges, founder of Hodges Capital, shares special quotes he collected over his 40 years as an investment advisor and student of personal and business success.

Hodges Capital Management, Inc. is a Federally Registered Investment Advisory Firm registered with the SEC.  The above discussion is not intended to be a forecast of future events, a guarantee of future results, and should not be considered a recommendation to buy or sell any security. Past performance is not indicative of future results. Investing involves risk. Principal loss is possible. Investing in smaller companies involves additional risks such as limited liquidity and greater volatility. No current or prospective client should assume that information referenced in this communication is a recommendation to buy or sell any security. Different types of investments involve varying degrees of risk. No client or prospective client should assume that any information provided is a substitute for personalized individual advice from the adviser or any other investment professional. This document was created for informational purposes only and the opinions expressed are solely those of Hodges Capital Management, Inc.