How to Choose an Investment Advisor To Manage Your Money

Deciding to hire a professional investor does not mean that you can just hand off your money to anyone in the industry and never consider it again. You worked hard for decades to make the money that you have and you should be as careful with it when handing it to someone else as you would if you were investing it yourself.

This article will help you think through the process of finding, vetting, and hiring an investment professional.

1. Get to know the different types of investment professionals

The first step in choosing an investment advisor to manage your money is to understand the different types of professionals in the investment / personal finance industry. First, let's identify the three types of financial professionals you will come across.

Financial Advisors are not investors, they help you budget and do financial planning

This is one of the biggest misconceptions that people have when it comes to professionals in the finance industry. Nearly anyone can call themselves a financial advisor, financial planner, or financial coach with minimum qualifications required.

Financial advisors can recommend investments to you, but they cannot make decisions FOR you. Most financial advisors will suggest mutual funds that they earn commissions for putting you into. They do not research companies individually and are not incentivized to do so.

Since financial planning is not the subject of this website, I'll leave it at that.

Stock brokers are not investors, are not registered investment advisors, and do not do their own research.

Most people are familiar with stock brokers. These are the guys in the suits screaming at each other on the trading floor at the major stock brokerages like Merrill Lynch, Goldman Sachs, and Bear Stearns...oops Bear no longer exists. Here are some facts about stock brokers.

  • Stock brokers are essentially sales people. They are paid on commission every time your buy or sell a stock. Their incentive is to generate as much activity in your account as possible. They will be full of recommendations which is funny in that they do not do their own research!
  • Stock brokers recommend whatever stock their "research group", the faceless analysts in the windowless building, tell them to recommend. Their job is to push those recommendations on you to trigger a buy or sale so the broker, and the brokerage firm, can make money. They win whether you lose money or make money.

Investors like me don't even bother with brokers most of the time. I do have to call mine when it comes buying hard to find fixed income securities (bonds). Other than that I just buy online.

Registered Investment Advisor Representatives (IAR) are investment professionals registered at the SEC or at the state level and regulated by the Financial Industry Regulatory Authority or ("FINRA")

An investment advisor is an individual or entity that (1) provides advice or analysis by making direct or indirect recommendations regarding securities or securities markets; (2) for compensation in any form; and (3) engages in the regular business of providing advice regarding securities.

In short, portfolio managers at hedge funds are IARs. It's a requirement if you are running money for people and making decisions. Individuals whose primary business is a Registered Investment Advisory ("RIA") which means they are in "wealth management" or "asset management" or "money management" are also in this category.

When I think of an "investment professional," this is the category I think about. Not all IARs or RIA's are cut from the same cloth, but they are a good starting point when you are looking for someone to invest for you.

For the rest of this article, I will focus on how to think about finding, evaluating, and hiring a Registered Investment Advisor Representative and their firm, the RIA.

2. How to evaluate an investment professional

This is page is specifically to help you figure out who to hire to invest money for you. Here are some questions to ask and things to think about when interviewing a Registered Investment Advisor Representative.

  • What areas do you specialize in? Make sure that the answers are the areas you are looking for help in. If they answer is "estate planning" and you are looking for a money manager to run your portfolio, there is a mismatch.
  • What are your potential conflicts of interest? These conflicts may be simple or complex, but there will usually be at least a few. For example, there is a radio personality with a show every Saturday that is a financial advisor and recruits clients through his show. He claims that he loves ETFs and puts everybody in ETFS, and if you research his company you find out that he owns the a broker/dealer that he uses and rakes in fees for ETF management. That is a serious conflict of interest.
  • Are you an active manager and do you do your own research? If either answer is "no" than you have not found an investor, you have found a financial advisor. If you are looking for someone to make investment decisions for you, make sure they do their own research. If they don't, you are better off investing in index funds.
  • How do you get paid? An Assets Under Management (AUM) fee is typical for money managers. Find out how they calculate them specifically.  If there are other fees, make sure you fully understand what they are and how they are calculated.
  • What can I expect in terms of communications, meetings, updates and so on? Be sure the RIAR will give you enough attention and on the schedule that you prefer.
  • What kind of reports and analysis of my portfolio can I expect to receive and how often? You can request a sample to see if you find them understandable and easy to interpret.
  • What kind of investment vehicles do you use? Common stocks, preferred stock, bonds, ETFS, Bonds, etc. Be sure you are comfortable with the answer. If they say that they do not invest in individual ideas, go elsewhere because, again, they are not an investor.

3. Now that you have interviewed your potential money manager, what should you expect once you sign up?

  • The RIAR should work with you to develop a survey of your current financial situation and investments, risk tolerance, family situation and so on.
  • The RIAR will then develop an Investment Plan specific to your situation with parameters you both agree on.
  • You will receive a contract between you and the RIA to read, initial and sign.
  • You will receive copies of the RIA's Form ADV Part 2A and 2B to review and keep for your records
  • You will also receive brokerage application forms and transfer forms so your RIAR can open accounts for you. A part of that application you will give the RIAR authorization to trade the account.
  • Once the accounts are open and funded, the RIAR will execute the Investment Plan and begin investing based on the agreed upon paramaters.

5. Managing your investment professional and holding them accountable

  • Always refer back to the Investment Plan and compare it to the statements you are receiving. Be sure to ask questions about any variances from the plan at your next meeting with the RIAR.
  • You should give the RIAR several years to begin showing performance in the account. One year is not enough. Two years should show enough performance to determine if you are in the right direction.


It's my hope that you will find this article helpful in finding and making a decision about what money manager to use to invest your money for you. Feel free to check out my firm Burgeón Group, Inc. and drop me a note if you would like a casual consultation on this topic.

About the Author

Jeremy Scott Bailey is an investor, author, entrepreneur and host of the "What Works In Investing?" podcast now available on iTunes. He is founder and Chief Investment Officer of Burgeón Group, Inc. an investment advisory firm that provides portfolio management services to families and individuals.

Leave a Reply 0 comments

Leave a Reply: