Choosing an investment advisor is a very important decision that many investors rarely give much thought to. Some simply make a choice based on the recommendation of a friend or family member, while others stumble upon an advertising campaign or other flashy marketing piece.
In my experience, people spend more time researching their next TV or computer purchase than they do in selecting the professional that will steward their nest egg. This is probably because there is instant gratification in the purchase of a new toy rather than the months and years it will take for an investment advisor to prove their worth.
Over the years I have spoken to hundreds (if not thousands) of investors that are searching for the right fit in managing their assets. Below are some of the biggest mistakes I see being made in this decision process.
1. Obsession with fees.
The media and many industry experts have done an outstanding job in calling out the excessive fees that have plagued Wall Street for generations. Products like annuities, 401(k)'s, actively managed mutual funds, and even hedge funds have been derided for their disproportionately high fee structures. This has led to the trend of investors swapping these products for low-cost exchange traded funds and automated investment programs with rock-bottom expenses.
While this subject has been in the spotlight for years, the pendulum has now shifted to an obsession with every basis point of embedded expense. Now things like the difference between an $8 trade and a $9.99 trade are considered huge controversies for investors considering two different online brokers. Similarly, the difference between an advisor charging 0.90% and an advisor charging 0.80% can often sway an investor to pick one over the other.
I'm going to let you in on a little secret. In the long run, neither of those decisions is going to matter as much as the securities your money is invested in or the advice you are given during a tough stretch in the market. Fees are important, but the continued democratization of the industry is leading to some of the lowest overall expenses in the history of the game.
