It is best to hire an investment advisor and insurance professional separately. Insurance by itself is extremely complicated. You’ll end up with an investment advisor who has to spend a lot of time keeping up with the insurance industry regulations, pricing, performance, and new product bells and whistles. You want him focused on markets, risks, and investments. And you don’t want him dealing with the second regulator, when the market is melting down. Don’t settle on an advisor who does both. It’s likely he/she will do both poorly. If you find an advisor or insurance professional you like and are comfortable with, ask for a referral for the other. They won’t want to take reputational risk by referring someone who’s not competent or has integrity issues.
Visit the FINRA’s (Financial Industry Regulatory Authority) website to see if the advisor has complaints or been convicted of fraud etc. These advisors can stay in business well beyond their usefulness to society by giving good lawyers lots of business.
Be aware of the various compensation structures that advisors have. These can be fee only, or commissions, or both. That’s right, many advisors collect both. Commissions are bad because of the incentive is not aligned with putting you in the best mutual funds. And be careful, many firms say they are fee based only, but aren’t. A recent study found that ~25% of a large sample of advisors who said in their marketing materials that they are fee based only, actually also collect commissions. These advisors are liars.
Regarding fee based advisors, fees are a percentage of assets under management. Merrill in 2014 will charge: 1.6% of the 1st $250,000, 1.3% for amounts over $250K up to $2,000,000 and 1% above that. Morgan Stanley fees are similar. Independents charge significantly less than that, because they are not sharing the fee with their boss and their boss’s boss and with the firm.
There’s a large exodus of advisors from these large firm, many are going independent as technology and research has become widely available and affordable in the last few years. Large firms account for 60% of private clients, down from 80%, ten years ago.
In short, go with a fee based firm that does not collect commissions, nor has revenue sharing agreements. A truly fee based advisor can get you in a mutual fund with an upfront load without you having to pay that commission. In this case, you don’t pay it and the advisor won’t collect it. That’s what fee based only, means. By the way, you’ll pay that commission if you do it yourself online.
Finally, make sure that the advisor has a third party custodian. You don’t want to invest with future Bernie Madoffs. Every other week, I read about another advisor absconding with their clients’ lifetime savings. If your money is housed at a third party custodian, you won’t be robbed. The custodian will send out monthly statements and year-end tax information directly to you. The advisor should only be developing a customized asset allocation based on your risk tolerance and executing transactions to populate that strategy for you. He should not be preparing your monthly statements and year-end tax information. He should also be knowledgeable about the investment environment and protect you portfolio from going over the cliff. Ideally, he’ll be moving you to cash before that. That’s what the great investors do.