What do you expect of your investment advisor?

When you hire an advisor, how will you interact and who will make the investment decisions? Over the last 25 years, working with hundreds of clients, I’ve found at least three different kinds of relationships that can work extremely well. The one that’s best for you depends on your investment knowledge, time constraints and personality. What model is best for you?

The general does everything.  When you hire your investment advisor to act as the general, you expect to him to make all important investment decisions based on your goals, and to report to you as needed on the progress.  Clients who want the general prefer less involvement in the day-to-day investment process and expect to be kept up to date as needed. This model can work best for investors who are fully occupied with work or family, and those who simply prefer to rely on the expertise of an advisor. As this arrangement conveys extensive control to the advisor, a deep bond of trust is essential.

The counselor consults and collaborates to a greater degree than the general.  Clients who choose the counselor model enjoy discussion of financial issues and keep themselves informed about current market conditions.  In this model the advisor acts as a source of information, ideas and guidance, and as a sounding board, with investment decisions made collaboratively. If you are utilizing multiple money managers, the counselor can coordinate their activities based on client preferences.

The chief of staff implements the commands. Clients who favor the chief of staff feel comfortable making broad investment decisions, which they rely upon their advisor chief to implement.  The chief of staff may make suggestions, but the investor makes the ultimate decisions. This model may be right for you if you are a knowledgeable investor with time available to watch your portfolio.  However, investors who tend to make decisions based on emotions may benefit from more counseling than a chief of staff would provide.

Common themes

While these three models differ in important ways, they also share common themes. No matter which model you choose, you should expect the relationship to include:

• Clear, consolidated performance reporting
• Risk management through allocation/diversification
• Emphasis on cost control and tax efficiency
• Portfolio customization based on your financial needs and personal goals
• Open and honest communication
• Alignment of interests

What’s the best model?  That’s really an individual decision, and one that may evolve over time as your financial, business and personal situations change. In any case, it is important to discuss your expectations with a prospective advisor before hiring to make sure you are both on the same page.