Let’s just say it: Many investment advisors aren’t worth their fees.

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Let’s be honest. At the end of the day, a financial advisor is doing one of two things:

1) peddling overpriced junk or 2) adding value to your investment portfolio.

As an advisor for 10+ years in several different roles, I'd be lying if I didn’t admit that too many advisors fall into Category 1: Low-value junk-peddlers.

But to the average person who is just trying to live their life, it can be tough to suss out the difference between those polishing a turd and/or taking a fee for something you could do for free, and people who are bringing real value and expertise to the table to help you make the most of your financial life.

The person you trust to guide your investment decisions, and pay from a portion of your investment portfolio, should be someone that you feel, with total confidence, is truly interested  in your needs – capable of helping you achieve the kind of progress you want to make towards your unique goals. ‍

Nice-sounding boilerplate portfolio "solutions" and cover-their-posterior “risk tolerance scores” can create a false sense of trust at the beginning of a new advisor relationship. But after a while, smart investors start to question whether their advisor is really doing that much for them.

Many people find themselves dissatisfied with their advisor but unsure what to do about it.

Here are some straight-shooting questions to ask yourself to help you separate the investment professionals from product salespeople.

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Ask yourself: Can I get this same investment portfolio — for free?

Dirty insider secret: A fully licensed financial advisor isn’t required to have any investment strategy education or experience. Despite all of the letters you might see after an financial advisor name, this is the truth. So how do you figure out how much expertise a financial advisor really has?

A quick way to suss out whether you're dealing with a low-value vs value-add advisor is simply asking them to explain the strategy behind your portfolio, as it relates to your financial goals.

The truest tell of an elite advisor is that they intimately 1) understand investment strategy, and 2) are able to clearly and concisely lay out why a portfolio is constructed the way it is.

Great advisors have answers for the underlying rationales of the portfolios they manage, because they personally craft each client's portfolio to meet their unique needs. They also can explain it simply to the average investor without relying on excessive jargon, because investment professionals understand the importance of effective communication in delivering value and peace of mind to their clients.If your advisor can't explain things simply to you, they likely don't understand it fully themselves.

A great advisor will clearly connect the dots for you on how the portfolio they’ve put together for you is optimized for your specific goals.

Another red flag is if they dismiss the idea of active management altogether. It’s trendy for advisors to ascribe to the school of thought that a stock portfolio simply cannot sustainably outperform overall markets. They’ll poo-poo “active management” — while still being more than happy to charge a management fee to “manage” your automated investment portfolio (not kidding).

Often the way to justify taking fees in this situation is to argue for the value of their other services (like long financial plans), or position bonds and “alternatives” as somehow more appropriate for active investment. This is the kind of lazy, low-value advisor that will give you mediocre results. Sure, you probably won’t have huge losses with this advisor, but you’re also not going to have remarkable results either.

If you have an advisor already, take a look at your portfolio. If you’re considering an advisor, ask them for a sample portfolio.

In either case, if 1) what you see looks identical to a collection of mutual funds you could put together in a free Vanguard account before or after a couple hours of reading from reputable sources, or 2) if that advisor can’t clearly explain the rationale behind the portfolio — then run.

After all, if your advisor is not adding real value to your portfolio, then why bother paying extra to have it “managed?”

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Ask yourself: Did they help me understand and determine my real risk tolerance?

Another little known fact that's important to know when evaluating the worth of an advisor is this: While it is legally required to evaluate a client’s “risk tolerance," the actual work that goes into figuring out whether an advisor's initial assumptions are different from the reality of the situation takes expertise and time. ‍

Advisors who are salespeople (not investment professionals) will cut corners here to save time and make up for lack of expertise. They use cookie-cutter (but “scientifically-supported”) questionnaires that assigns you to a generic risk profile that then matches you with some generic "good enough" portfolio, and then call it a day.This is how people end up with situations where a 35 year old is investing like they're 75.

‍It's because these "risk tolerance questionnaires" are just 10-30 generic questions that the client is asked to answer before they're given any context about what risk tolerance even means across various assets in their portfolio. This means you end up taking the assessment blind, and therefore your answers are basically your initial best guesses about how you want to invest your money.

Advisors takes this "risk tolerance" and use it to manage your portfolio, so getting it right is key. A great advisor will be a proactive educator that ensures you know what you don't know —and understand everything you should (or want to) know — about how your investments are managed. ‍

Ensure that both you and your advisor have a good handle on your true risk tolerance across each of your accounts.

Incorrectly assessing your risk tolerance can mean missing massive amounts of investment gains every year, or conversely having parts of your investment portfolio invested far more aggressively than is optimal.

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Ask your: Is my advisor informed and assured in the bad times? Do they help me feel more confident when we talk?

Advisors who seem anxious to discuss your portfolio during market downturns are usually anxious about how to navigate it themselves.

The next market downturn is as sure to come as death and taxes. Experienced advisors proactively ensure you know it’s part of the plan and that you’re ready for it.

If you call your financial advisor to discuss a market downturn, the conversation you have should feel redundant to what you’ve discussed in the past, and reassure you that your future is safe.

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Ask yourself: Is my advisor enthusiastic about helping me understand my investments?

There’s nothing a great advisor loves more than when their clients feel up-to-speed with their investment strategies, and leave 1:1 meetings completely confident about how their investments are being managed.

The knowledge and peace of mind that comes from 1:1 meetings are a huge piece of the value equation with quality wealth management. Even so, many advisors resist being consultative because it takes a lot of time. Time they could be using to get more clients or sell more fee-based products.

While wealth management is a “numbers” profession, it’s also a critical relationship — and one that should add value to how you experience and engage with your financial life.  

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If you can't answer these questions with confidence, or are afraid to know the answers, then you likely don't have a great advisor.

At the end of the day, your priorities – not a firm’s further growth or services they sell – should be your advisor’s only focus. After all, you're paying them to put you first.

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Tom Toth is a wealth manager and founder of Toth Capital Management, based in Reston, Virginia. He lives with his family and is active in his Loudoun and Fairfax county communities. If you see him in the wild, it might be at a local storytelling event, coaching his daughter's soccer team, or cheering in the stands at a Nats game… you’ll hear him in any case. Have a question for Tom? Email him directly at: Tom@TothCap.com

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