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I'm in my mid-twenties and am looking for advice on how to allocate my assets properly. What's the best type of financial adviser to look for in this process.?

Jun 20, 2012 by Ryan from San Francisco, CA in  |  Flag
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10 votes

The comments about choosing a fee-based advisor are spot on. When an advisor is paid a fee that is based on a percentage of the assets managed, they have every incentive to grow your nest egg responsibly without taking undue risk. Here are a few other items to consider:

  1. Make prospective advisors explain "what they do." How do they invest? What criteria do they look for when making an investment? Who are their role models and who/what do they read? If they can't answer these kinds of questions intelligently, then keep looking.

  2. Make sure the advisor finds the time to sit down with you and LISTEN. It's sort of like looking for a spouse; if they don't do it during the courtship phase, they are not too likely to do it once the honeymoon is over. If after hearing what you have to say, it might make sense for them to put you into a standard model, or it might not. Just make sure the advisor is legitimately interested in building a relationship and not just looking for a quick sale.

  3. Historical investment returns are not everything (you can't drive by looking solely in the rear view mirror), but they certainly do matter. But more important than the returns themselves are the processes that went into the decision making. Don't be afraid to grill the advisor about how they performed, and ask them about the investments they made and why. If they outperformed the market, did they do so by taking extra risk that may or may not have been appropriate? If they underperformed the market, is it because they invested more conservatively?

Most of all, be willing to call "B.S." if something the advisor says doesn't make sense. The advisor may not be intentionally lying, but communication is an important part of the job. If they can't explain something intelligibly, look elsewhere.

And finally, again using the marriage analogy, play the field before you settle down. Interview a lot of managers before settling for Mr. or Ms. Right.

Comment   |  Flag   |  Jun 20, 2012 from Dallas, TX

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7 votes

Wow, Ryan! Good for you! First I should tell you that both Danny and Michael are right and the advice is excellent. But, if you're like most 20-somethings, single, and just getting started, all you really need is to start investing systematically. First, make sure you accumulate a liquid cushion to conver emergencies (loss of job, etc.), then you can just pick a good no-load, low cost index fund and start your systematic investing. While I don't know you so I can't give advice, an example might be Vanguard's Total Market Index available as a mutual fund https://personal.vanguard.com/us/funds/snapshot?FundId=0085&FundIntExt=INT or an ETF. There are also other index alternatives; but, I think at your stage, simply doing something systematically is likely more important than what you do.

If you're futher along that that, married, etc., by all means you should sit down with an advisor, just as Danny and Michael suggested.

Comment   |  Flag   |  Jun 20, 2012 from Moorpark, CA

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Hi Ryan, kudos to you for starting to save early! I would suggest you start your search with an advisor who is a Certified Financial Planner. Look for a person with some experience (maybe 5 years at a minimum). Be sure to check out the advisors ADV form (a compliance form that all investment advisors must make available to clients); the ADV form explains how the advisor works with you, how the advisor is paid, investment philosophy, etc.

That should get you started on your search process. Mike

Comment   |  Flag   |  Jun 20, 2012 from Orland, IN

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Hi Ryan,

How an advisor is paid is important and it is more important that you understand how the advisor is being compensated. Is the advisor compensated by a firm supplying the products or is the advisor directly compensated by their clients. There is no question of conflict of interests with advisors paid directly by their clients. Client satisfaction equals advisor employment.

Making sure you are satisfied with the advisor's qualifications and background. An advisor starting out will have a smaller client base and be very appreciative of your business. A more experienced advisor will understand their future survival depends on clients like you.

Asset allocation is one of the most important questions an investor should ask of their advisor. The solution should be based your personal tolerance for risk, what are your financial goals, how much are you working with, how much can you contribute in the future, and what investment vehicles will best help you attain those goals.

All the best!

Comment   |  Flag   |  Jun 20, 2012 from Thousand Oaks, CA

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4 votes

Ryan, Look to work with an advisor that is fee based. An advisor that will provide advice to you on a particular subject matter for an hourly fee. You will get the advice you need given your current total situation. Best of Luck. Dan

Comment   |  Flag   |  Jun 20, 2012 from Asbury Park, NJ

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