Five Questions to Ask When Searching for a Wealth Manager

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September 1, 2017
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When you browse your local supermarket, you are likely inundated with buzzwords like “natural,” “whole grain,” “made with real fruit,” and “made with organic ingredients.” When reading these labels, Consumer Reports states that most adults believe they’re purchasing foods that are “produced without genetically modified organisms, hormones, pesticides, or artificial ingredients.” In short, they believe that they are buying more natural, healthier options for their families. The unfortunate truth, however, is that these words are not regulated by the FDA and are just marketing ploys. Even green labels are perceived to be more nutritious than their brightly colored counterparts. Similarly, while many cosmetics tout to be “natural,” the FDA only requires 20% of ingredients to be natural to make this claim.

What does this mean for consumers? It means they must do their own due diligence and understand what to look for. Reading the actual ingredient list and looking for accredited, third-party verifications such as the USDA Organic Seal are two helpful ways to help make more informed purchases.

Though it may seem like a far-fetched comparison, many investors face a similar quandary when searching for wealth management and investment advice.

The financial services industry is notorious for its use of confusing jargon and “mansplaining” of complex items. Many investors may feel intimidated and overwhelmed by the volumes of complicated and convoluted information available today. One of Balentine’s main goals is to help our clients simplify their lives. So we’ve come up a list of five questions you can ask any potential advisor in order to sniff out potential or hidden conflicts of interest.

  1. How are you paid? If a firm’s fees seem too good to be true, then they likely are. Some of the industry’s most notorious violators in this area include wrap fees, 12b-1 fees, ETF kickbacks, loads, and expense ratios. A follow-on question should be directed towards any proprietary products. If a firm sells products on which the financial advisors can earn a commission, it may be hard to know if you’re truly getting unbiased advice on the best solution for your needs or if you’re just a way for the advisor to earn a bonus! Some firms have even been known to send incentive trip advertisements to financial advisors’ spouses in order to encourage them to sell more of “XYZ product.” In order to get as much clarity as possible, we recommend you ask to see an “all-in” fee. Choosing an advisor who does not sell products or earns commissions alleviates this issue altogether.
  2. Are you held to a fiduciary standard? It may seem odd to think that a financial advisor can give advice that may not be in their clients’ best interest. This is where the differences between suitability and fiduciary standards of care come into play. An advisor that is held to a suitability standard of care is not required to put the client’s interests first; instead, he or she only has to do what is suitable for clients. Under a suitability standard of care, a broker-dealer can sell his or her firm’s products, even though a competing product may be less expensive, and he is not required to disclose this information to the client. With a fiduciary standard, an advisor is legally required to always act in the client’s best interest. Those interests must be placed above the RIA’s own, and advisors must disclose material facts to the client, including conflicts, fees and business affiliations.
  3. What is your ownership structure? At the end of the day, companies are in business to make a profit and, ultimately, reward the shareholders. However, not all profit models are created equal. The time frame and expectations are much different for entrepreneurial-minded partners of a firm versus the general public. Actively involved partners are long-term-oriented – over many years if not decades - and therefore understand the importance of maintaining a loyal employee- and client-base. On the other hand, publicly traded companies have to answer to shareholders on a quarterly basis. This creates a culture of short-term financial incentives above the long-term interests of its clients. The most recent examples of this have been with Wells Fargo in 2016 and again in 2017!
  4. Are you GIPS® compliant? GIPS is globally administered and monitored by the CFA Institute and stands for Global Investment Performance Standards. They are considered the “gold standard” of reporting performance to which investment managers should adhere. GIPS compliant performance data provides current and prospective clients alike a greater level of confidence in the integrity of performance presentations, as well as the general practices of a compliant firm.
  5. What designations do your team members hold? Like the “USDA Organic” seal you may seek at the grocery store, designations signify that your financial firm’s team members have undergone rigorous training and studying in their area of expertise. Two of the most respected today in the industry are the CERTIFIED FINANCIAL PLANNER (CFP®) and Chartered Financial Analyst® designations.

If you are feeling confused by the financial landscape, these five questions should help you narrow down the playing field. However, your situation is unique, and just because a firm meets these criteria, this does not mean that a firm may suit your needs. If you are a business owner, for example, you may seek experts who have helped other clients through a liquidity event. Therefore, it is always prudent to ask to speak to client references. Clients can tell you, in their own words, what it’s really like working with a particular advisor or firm.

Just as the food industry has a long way to go, so does the wealth management industry. It’s an ever-changing field, and regulatory bodies are doing their best to help protect clients, but there is still a long way to go. That is why it is so important for clients to do their homework and know the right questions to ask.


Balentine LLC (“Balentine”) is a registered investment adviser with United States Securities and Exchange Commission in accordance with the Investment Advisers Act of 1940. To obtain a compliant presentation or the firm’s composite descriptions, please email Balentine claims compliance with the Global Investment Performance Standards (GIPS®).

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