This article runs through the main questions someone should ask of a potential wealth advisor, and is part of the checklist that HNW individuals need to have in deciding whom to hire – and avoid.

Hiring an advisor raises a number of questions for high net worth individuals and families. Make a mistake and hire someone who is unsuitable, then much time and money is spent for a poor outcome. Understanding what questions to ask a candidate before hiring him or her is vital. In this article, Paul Karger, and Wesley Karger, co-founders and managing partners of TwinFocus, set out the questions that count. TwinFocus provides advisory on wealth and M&A, direct investment, and offers family office management, among other capabilities. 

The editors are pleased to share these ideas, and welcome responses from those interested in this topic. The usual editorial disclaimers apply. Email tom.burroughes@wealthbriefing.com

Thanks to a generally robust equity market and favorable outlook for interest rates, ultra-high net worth individuals are creating and compounding wealth at a steady clip. To manage the complexity that comes with it, you may be thinking of engaging a wealth advisor or moving from your current advisor to one more aligned with your evolving needs. 

The choice of who will steward your and your family’s wealth isn’t one to take lightly. As you embark on the discovery and due diligence process, here are a number of key questions to ask prospective advisors.

1. What is the composition of your client base (e.g., UHNW investors vs. institutional investors; average level of wealth)? 
While having an advisor with a large (non-taxable) institutional clientele may instill confidence and imply a high level of expertise, individual investors and institutions have very different needs, risk budgets and tax profiles. In contrast to institutions, UHNW individuals face taxation at multiple levels – state and federal income taxes, as well as gift and estate taxes. Additionally, the ultra-wealthy often need advice on broader life and financial issues, such as family dynamics, legacy and weath structuring strategies, personal wellbeing and security, and philanthropic endeavors, which require both relevant technical experience and a “human touch.”

It is also important to ask how many of the advisor’s clients are at or near your level of net worth. The issues facing a family with a $100 million balance sheet and portfolio are not the same as those with $30 to 50 million, with respect to asset allocation, risk-return profiles, liquidity management, tax and estate and other factors. Generally, you don’t want to be a firm’s largest or smallest client, as you want to be assured that your multi-disciplinary team is experienced in working with people like you and that you’ll have their full attention.

2. How do you handle clients’ taxes – federal, state, gift/estate, business/corporate, cross-border, etc.?
An advisor’s tax planning capabilities are critical for UHNW individuals. The old adage, “It’s not what you make, it’s what you keep,” is especially apt here. A 15 per cent pre-tax return on an alternative investment partnership can easily turn into a Treasury-like after-tax return without the right strategies in place. Regardless of whether the advisor has in-house tax counsel and experts, or relies on an outside tax consultant, you need assurance that they will approach your investments from a tax-efficient perspective, and that they are uniquely equipped with the necessary expertise to analyze alternative investments from a purely tax perspective. We have found this is a skill set that few advisory firms maintain.  

3. Who owns the firm, and who will I be working with day-to-day?  
The wealth advisory sector has undergone a wave of consolidation in recent years, as founders retire and smaller firms aspire to greater scale and resources. Outside capital also has been attracted to the field: private equity firms were directly or indirectly involved in 60 per cent of the estimated 300-plus wealth management M&A transactions in 2022, a trend that has continued in more recent years. There’s nothing inherently wrong with an advisor being owned by a PE firm, but it’s worth asking whether the advisory firm’s leadership has “skin in the game” and an ownership mindset.

You also want to be sure that you are getting the best thinking from the most qualified people at the firm. That means having regular access to senior professionals, while also being assured that there is a deep bench of support staff. 

4. How will I know “how I’m doing” if we work together? What does reporting look like? 
In-depth analytical reports on your portfolio performance are table stakes. Today’s technology should enable your advisor to provide customized reports with the breadth and depth of information you require regarding your investments. While quarterly reporting is typical, feel free to specify whether you want to receive assesments more frequently. Depending on the composition of your asset base and the investment structures used, there could be limitations with regard to the valuation timing of certain investments. You should also ask to see a redacted sample of a client report and learn about the capabilities of the firm’s online portal.

Relatedly, ask how the advisor will communicate with you. Communication channels and processes can vary greatly, but finding the right fit for your needs and preferences is key. Let the prospective advisor know whether you prefer digital, phone or face-to-face communications, and ensure that they can accommodate your wishes. Find out if someone will be available on short notice if you need help with a pressing issue outside normal business hours. Privacy and information security during all of your interactions should also be paramount.

5. Who can I talk with to understand what it’s like to work with you?  
A prospective wealth advisory firm should be willing to provide (long-standing) client references. The references will be more useful if they are clients with similar asset levels and backgrounds, such as a successful entrepreneur or C-suite executive, who have encountered similar sorts of issues to the ones you are facing. In addition to asking for references about their satisfaction with the firm’s performance, find out who they work with at the firm, how responsive they find the team to be, and if there has been any unusual employee turnover, etc.

6. How will you help me manage my charitable goals and legacy? 
If doing good in the world – your time and money is important to you â€“ so be sure to find out if the advisor can support your philanthropic objectives. Can they help with tax/legal/administrative issues related to a family foundation or donor advised fund? Does the wealth advisor team have experience managing complex philanthropic programs and engaging with external executive directors and keeping philanthropic staff accountable? Are they knowledgeable about the associated tax ramifications and how best to structure an overall family charitable program for maximum tax efficiency while addressing the family’s current and future philanthropic mission? The right advisor can help you integrate your family’s charitable plans with your balance sheet and long-term, multi-generational objectives.
 
“You don’t know what you don’t know,” is true in many contexts, but it’s especially important to remember when evaluating a wealth advisor. It’s essential to ask pertinent questions – and to approach the selection of an advisor with the same discipline and diligence that enabled you to amass wealth in the first place.