Over the weekend, I read an article on Morningstar.com entitled “Is It Time to Dump Your Broker?” The author suggests that finding the right broker, or advisor, is like finding the right car. You want one that you are comfortable with for long periods of time, but one that doesn’t cost too much. The article lists six guidelines to keep in mind when evaluating your current relationship. After reviewing the list of guidelines, I am happy to report that my firm, Rall Capital Management, passes the tests on all six fronts.

Here are the guidelines recommended to make sure you are working with a good advisor, along with a little commentary on how my firm stacks up:

1.) What Conflicts Does the Advisor Have? Do they have to sell a certain quota of proprietary products? They suggest that you ask to see a sample portfolio and determine if there are any cross-business relationships between the broker and the investment manager. If you are talking with a registered investment advisor, it’s as easy as asking for their Form ADV, part II.

As an independent registered investment advisor, Rall Capital Management, works only for our clients. There are no products to sell. We are fee-only and get paid for our advice and guidance, not for selling something. As a potential client, you don’t have to ask to see a sample portfolio; showing it to you is an important part of our initial meeting.

2.) How Are They Really Compensated? Do they charge a standard asset management fee, which is typically around 1%? And the more money you have, the lower the percentage. The article mentions that you should be paying about 0.4% annually if you have more than $5 million to invest.

At Rall Capital Management, our fee starts at 1.25% and declines as the level of assets increases. Our fees are transparent, you’ll know exactly what you are paying, and they are listed on our website for the whole world to see. Unfortunately, not many folks have $5 million to invest, so they pay a bit more than the 0.4% mentioned in the article.

3.) Will They Create and Adhere to an Investment Policy Statement? The article suggests that any advisor who doesn’t create a document for you that outlines risks, returns and objectives, that you fully understand, isn’t worth hiring. An IPS is the driving force behind your investment strategy and needs to be understood, and agreed to, by both you and the advisor.

We find that most people don’t have an Investment Policy Statement. Many don’t even know what one is. Every client of our firm has one. And more importantly, we make it a point to update it at least every two years to account for any changes in life circumstances.

4.) Are They Fiduciaries? This is a big one. The author of the article suggests it be the first question you ask an advisor. The average person just assumes that a broker, or insurance agent, is going to work in your best interest. But the fact is that they work for their brokerage firm or insurance company and are agents to move financial products. From a regulatory standpoint, they are held to a weak “suitability” standard when it comes to recommending investments. Most independent financial planners and registered investment advisors are held to the higher, fiduciary standard. They can, and should be, sued if they wrong you.

Our firm gladly accepts and promotes the fiduciary standard. We know that the investment world is a complicated place and that everyone deserves someone working on their side and in their best interest.

5.) What Designations Do They Have? The article points out that many advisors call themselves “senior/retirement specialist” and have sold unsuitable investments to hundreds of thousands of elderly investors. Ask your prospective advisor how much training and experience they needed to obtain their designations. Some designations are awarded in a day. You should look for a Certified Financial PlannerTM, Certified Public Accountant/Personal Financial Specialist, registered investment advisor, or accredited investment fiduciary.

As principal of Rall Capital Management, I received my Certified Financial PlannerTM designation in 1998 and have been a registered investment advisor since 2000.

6.) Is Cost a Chief Concern? Of course it is! The higher your investment cost, the lower your effective return. The article states that “significant savings are possible on asset-management fees if the advisor can also choose from exchange-traded funds or passive index vehicles through groups like Vanguard or DFA.”

Our firm follows a passive management philosophy and the bulk of our invested assets are with DFA and Vanguard. They provide the most cost-efficient exposure to the different asset classes we use to build our client portfolios.

So, I think we are 6 for 6! If you are a current client, I hope that this article helps reinforce your positive feelings about our firm and the decision you made to hire us. If you are not a current client, we understand that the client-advisor relationship can be complex, but if you are feeling that it might be time for a change, we would welcome the opportunity to earn your business.