Choosing a financial advisor in Grand Rapids can be a difficult decision. There are many firms to choose from with thousands of advisors in total. Some firms have different affiliations and advisors have several differing titles and certifications. So where does someone who is just the average investor who doesn’t have the behind the scenes knowledge start looking?

Step 1: The first and most important step is finding a firm that has your best interests at heart. With the newest DOL rulings, this is now soon to be even harder to distinguish. This is because “best interest” now doesn’t mean what you would think and product salesmen can use it even more freely than before. So how can you tell? The biggest giveaway is if the firm is a Registered Investment Advisor (RIA) or not. RIA’s have to legally do what is in your best interest and act as a fiduciary. RIA’s also receive their compensation by fees rather than commissions.

Step 2: Figure out if the RIA has any Broker/Dealer affiliations or not. A broker/dealer is a “back office” that an RIA might use. Broker/Dealers are a must if the RIA wants to do any commission work on the side. This type of affiliation is not idea as the advisor can switch from working in your best interest on one account and then work under what’s called the suitability standard in another one of your accounts rather than the fiduciary standard. Often times, this is called “fee-based” vs “fee-only”. It’s important to find an RIA that has no BD affiliation. You can quickly tell this from the RIA’s website in it’s disclosure, generally at the bottom of the home page. It can also be found in the firms legal brochure filings (ADV) as well as through Broker Check.

Step 3: Now that you’ve found a fee-only registered investment advisor without any broker/dealer affiliations, it’s time to look into the firms investment philosophy. The two basic styles are active management and passive management. Active management attempts to use forecasting, selection, market timing, and other predictions in order to outperform the markets. This style generally has higher internal costs as well as high turnover. Turnover is the buying and selling within a mutual fund or individual stocks. Turnover has a cost associated with it that doesn’t have to be reported. Passive management, on the other hand, tends to more of a buy and hold strategy. It involves no market predictions, forecasting, or any other type of timing. Instead of trying to beat the markets, you work with the markets. Passive management generally has low cost and low turnover. There are several types of passive management that include indexing and asset class investing, or “smart” passive management as we like to call it. Passive management, has been academically and statistically supported to be in the best interest of investors versus active management. In summary, it’s important to find an advisory firm who believes in passive management over active.

Step 4: Your final step should be finding a firm that fits into your financial situation. Many firms have account minimum sizes and don’t work with investors that are below that minimum. Although, this is often times more of a marketing play than an enforced amount. You can find this information by contacting the firm, viewing their website, or viewing the firms filings such as the ADV disclosure, which generally can be found their the website. Other notable suggestions is background checking the individual advisors through BrokerCheck to make sure they have a clean record.

These steps should narrow it down to a few firms and advisors to choose from. Take your time with your choice and don’t rush. It’s important to find an advisor that you can have a long term relationship with and not have to change down the road constantly. We hope this helps you in finding your next fiduciary advisor in Grand Rapids.