How to Run Due Diligence on a Wealth Advisor

You don’t want just anyone helping your clients navigate wealth management in the years to come. That’s why it’s so important to run due diligence before selecting an advisor. Legal professionals and law students will want to be mindful of everything from a potential advisor’s approach to data collection to their regulator registration before recommending them.

If you’re being asked to suggest a wealth advisor, you’ve come to the right place. Read on to learn how to run due diligence, so you’re making a solid recommendation. 

Verify the Advisor’s Registration

Investment advisors will need to hold active registration with the Securities and Exchange Commission (SEC). Check the SEC’s database to verify that an advisor is included. After all, you want someone who meets national requirements when working with large quantities of money. 

Beyond that, you’ll want to see that the advisor has a clean track record. Any disciplinary actions could be red flags that you’ll want to avoid. Watch for complaints and read the details thoroughly so you can make an informed decision regarding someone’s fitness for an advisor role.

Look for a Fiduciary Approach

You want to confirm that a wealth advisor can act as a fiduciary. This means that they will prioritize their client’s needs above their own and act responsibly with asset management. 

It’s wise to ask a potential wealth advisor if they adhere to this standard, and if they do so for all clients. It’s also best to verify this in writing. 

Ultimately, you want to confirm that your client is working with reputable wealth planning and advisory solutions that operate transparently and in a documented fiduciary capacity. An advisor should be transparent and use data to inform every portfolio-related decision. An advisor should steer clear of conflicts of interest and make sure their client can ask questions. 

Know What Costs Look Like

Be clear on fee structures with any advisors under consideration. They won’t always be the same. And you don’t want to recommend someone with opaque practices that cost your client more money. 

Some wealth advisors will work on commission. In that scenario, they’ll only make money when they are able to sell a product to a client. 

In other cases, advisors will make money from their clients’ assets. This usually amounts to a percentage of the assets that is charged as a fee. For many clients, this is the preferred model. 

When in doubt, ask an advisor to show a sample schedule of payment. Or simply ask what the fee calendar looks like.

Consider the Quality of Reporting

Clients want to be looped into their portfolio’s performance. But not all wealth advisors communicate this information well, resulting in a weak understanding of risk. Confirm that the advisor you’re recommended makes robust reporting a priority. 

You want to see evidence of frequent and clear updates. Updates should show detailed descriptions and assess whether portfolio performance is meeting established benchmarks. 

Additionally, reports should keep a consistent structure so they’re easier to read quickly. That way, if there is a dispute or need for a review, finding relevant information won’t be a complicated task. 

Evaluate Cybersecurity Controls

Wealth advisors are constantly accessing personal financial information. As such, they should have strong cybersecurity practices to prevent leaks that could cause real damage. 

You want to confirm that a potential advisor uses multi-factor authentication for passwords and logins. They should use data encryption. And they should have a clear plan in case there is a security breach. 

Ideally, a wealth advisor will have cybersecurity experts conducting routine audits to ensure their protocols are adequate. It’s fair to ask an advisor what measures they would take to keep your client’s data secure. 

Make the Right Recommendation

Even if you’re not a financial or cybersecurity expert, you can still take steps to make sure you’re recommending a quality wealth advisor. Confirm that anyone you’re planning to recommend meets registration requirements and operates in the client’s best interest. Look at their reporting style and check their fee structure.

With some research, you can help make a suitable recommendation that meets your client’s needs.