The Financial Advisor Evaluation

Savvy clients will annually review the services they receive and what they are charged

 By Robert C. Lawton

Recently my dad passed away. To help my mom gain an understanding of her financial situation, I needed to learn about the financial advisor they were working with.

My parents came from a generation where it was considered rude to discuss money (and politics and religion). Good parents didn’t burden their children with the stress associated with money, even if those children had grown children of their own.

When I was young, anything related to money was discussed in hushed tones. As a result, when Dad said that we didn’t have any money, I believed him and thought we would be out on the street the next day. Only much later did I learn that some people feel they don’t have any money unless they have $100,000 liquid (this was not, regrettably, ever my dad’s situation).

So I needed to evaluate my mom’s financial advisor, hired by my dad, and the services that he was contracted to provide.

I am sharing the process I went through with the awareness that others might conduct a similar evaluation of you. In fact, I often tell people they should do such a review every year. Typically this is best done after the year concludes. I know that 2018’s evaluation might have been a bit different from most because of the significant volatility we experienced in the markets.

I should mention that I run a Registered Investment Advisory (RIA) firm that has more than a half-billion dollars under contract, so I can assure you that I touched all bases during my review, an outline of which appears below.

Clients should know exactly what they are paying

My mom wondered what I would be asking her financial advisor. I said I would start by asking what he is charging and what services he is providing.

Mom said: “You can’t ask him that, it would be rude. He might be offended.”

Savvy clients, especially younger clients, will not feel this way.  Most advisors (brokers especially) have transitioned from a transaction based service model to one that is consultative. It would be unusual now to charge only on someone’s account activity (buying and selling of investments). So it is likely clients are being billed an annual percentage fee that varies based upon the amount of assets they have.

A couple thoughts here. Most advisors have a fee schedule that declines as assets increase. For example, 1 percent (or 100 basis points) on the first million and .50 percent (or 50 basis points) on anything above that. Unfortunately, most investors use multiple advisors and end up paying much more for advice than they need to, since they are always stuck in the meaty part of the fee schedule.

For example, if someone has $1 million with Advisor A and her spouse has $1 million with Advisor B, they are paying $20,000 per year in advisor fees (using the fee schedule above). However, if the couple used the same advisor, they could save $5,000 per year. The easiest way for many couples to increase their portfolio returns is to place all of their investable assets with the same advisor. Worth pointing out to clients.

I talk to many investors who feel that paying 1 percent per year is too much when they have no trading activity. They complain that their advisor isn’t doing anything for them but collecting a fee.

If you have a client who feels that way, recommend she place her assets with a discount broker (Schwab, for example) and hire you at an hourly rate each year to review her portfolio and make recommendations. In some cases this will make sense and save you the client’s resentment.

Discuss fee transparency

Some advisors receive payments from mutual fund families, insurance companies and other financial institutions. As a result, it may take a little work for clients to determine exactly how much you earn from working with them.

The most sophisticated will ask you whether you receive any revenue in addition to the fees that the client pays to you. The most sophisticated will also understand that it’s best to work with advisors whose only source of revenue are the fees you pay them.

Understand your investment costs 

Most of us invest in mutual funds. If these funds comprise the majority of the portfolio, clients will need to determine whether they are using the cheapest share classes available for each fund.

They may do their research or just ask you. Generally the institutional or “I” share classes are the least expensive. If your clients aren’t in the lowest-cost share class for each of their funds, tell them why.

Be prepared for clients to ask about Fidelity, Schwab and Vanguard since they’ve been aggressively lowering their investment minimums and expense ratios on their index funds. For some clients it could be that a fund from one of these firms can be a less costly alternative to achieving their investment objectives.

Provide a list of your services

Once you have an understanding of what you are paying and how it is charged (quarterly, annually, deducted from assets, etc.), you need to understand what that is buying you.

Most advisors will conduct at least an annual, in-person review with their clients and provide continual portfolio monitoring services. More frequent reviews are possible (quarterly is the most frequent you can get) but are dependent upon the amount you have with that advisor. If you have $100,000 with your advisor, you aren’t going to get quarterly reviews.

The more money you have with an advisor, the more services you can expect to access. Tax preparation, estate planning services, legal advice and document preparation are just some of the services that you could expect your advisor to either coordinate or deliver if you have a significant sum of investable assets with that advisor.

Advisor backgrounds are easy to check

Studies have shown that investment advisors who have been sued in the past are more likely to be sued in the future. Be aware that clients can check the background of their advisors using BrokerCheck.

BrokerCheck is a free service provided by the Financial Industry Regulatory Authority (FINRA), a financial industry regulatory agency under the direction of the Securities and Exchange Commission (SEC).  Advisors are not notified when someone uses BrokerCheck. 

Make sure you are giving leading-edge advice

Clients should hear about new ideas that may affect their investment portfolio from you and not from somewhere else.

If they are reading about something that they believe directly affects their investment strategy, or they hear from friends that their advisor is recommending something that appears to relate to their investment portfolio, and they haven’t heard the same thing from you, that’s a concern.

Clients check the marketplace

After clients have developed an understanding of what they can expect to receive from their advisor and what they will be paying, they may make a couple calls to other advisors to see how you compare.

They’ll be satisfied if your fees and services are in the same ballpark with those of the other advisors they are checking. So make sure that’s the case.


Robert C. Lawton, AIF, CRPS is the founder and President of Lawton Retirement Plan Consultants, LLC. Mr. Lawton is an award-winning 401(k) investment adviser with over 30 years of experience. He has consulted with many Fortune 500 companies, including: Aon Hewitt, Apple, AT&T, First Interstate Bank, Florida Power & Light, General Dynamics, Houghton Mifflin Harcourt, IBM, John Deere, Mazda Motor Corporation, Northwestern Mutual, Northern Trust Company, Trek Bikes, Tribune Company, Underwriters Labs and many others. Mr. Lawton may be contacted at (414) 828-4015 or