With the proliferation of investment advisory firms, selecting the right one can be a daunting task for investors. Sending out a request for proposal (RFP) is a common approach to evaluate and compare investment advisory service providers. An effective RFP outlines the investor’s requirements and facilitates the assessment of firms’ capabilities. When reviewing RFP responses, several key factors should be considered to choose an advisor aligned with one’s investment philosophy and goals. This article discusses crucial criteria in evaluating investment advisory services through RFPs.
Comprehensiveness of Services
A top concern is whether the firm provides the full range of services required. Review the types of accounts and investment vehicles offered, such as individual or joint accounts, IRAs, trusts, 401(k)s. Examine if they have expertise in particular asset classes like equities, fixed income, alternatives, according to your investment plan. Also, assess if they offer fee-based or commission-based services, financial planning, retirement planning, tax management and estate planning services. Firms with comprehensive service capabilities can effectively meet various investor needs.
Customized Portfolios and Investment Strategy
A key aspect is if the firm creates customized portfolios aligned with each client’s financial situation, risk tolerance and goals. Assess if they take the time to understand your complete financial picture beyond just investment assets before making recommendations. Also, review if they have a well-defined investment process and philosophy for constructing portfolios and managing assets. Understanding their strategic approach can give you confidence in their ability to manage your money.
Reporting and Communications
Regular communications and performance reporting is vital for productive advisor relationships. Evaluate the frequency and methods of communication provided, such as monthly statements, quarterly reviews, annual in-person meetings. Assess the clarity and usefulness of their client reports in summarizing portfolio performance, holdings, transactions and fees. Clear reporting allows you to effectively monitor investment progress.
Fees and Compensation Structure
The fees charged and compensation model should align with your preferences. Review the fee schedule and structure – whether a percentage of assets under management, fixed/hourly fees or commissions. Assess fee reasonability based on services provided and client portfolio size. Also, check for any other account charges or transaction fees. Transparent fee structures ensure no hidden costs.
Track Record and Reputation
Consider the advisor’s experience, qualifications, credibility and reputation. Review their years in business, growth of assets under management, professional certifications of staff, and affiliations with respected industry associations. Check registered advisor status with regulators. Also, request and call references to evaluate customer experiences. An established and reputable firm provides confidence in their capabilities.
Sending RFPs to investment advisory firms and evaluating responses based on services, investment strategy, reporting, fees and track record allows investors to make informed decisions in selecting advisors best suited to their needs.