Investors should pay attention to the ownership structure of their advisor's firm.

• It is crucial to consider multiple factors when selecting an advisor, including investment expertise, access to offerings, and compatibility.
• Often, the ownership of an advisor's firm is disregarded by many.
• It is crucial for investors to be aware of the ownership of their advisor's firm when businesses prioritize achieving numbers over providing excellent service.

While obtaining financial advice online has become more accessible than ever, many investors may still find that a human financial advisor cannot be replaced.

The problem, however, is selecting the right one.

An investor should evaluate an advisor's investment expertise before investing. While low-cost index funds are widely accessible, it is crucial to assess an advisor's individual portfolio management skills.

Investors often require services and products beyond investment management, such as assistance with saving for a child's college education, selecting the appropriate insurance, establishing an estate plan, and optimizing tax planning.

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It is crucial to determine whether an advisor is a fiduciary and prioritizes their clients' interests over their own. Unfortunately, some advisors, who are only subject to a suitability standard, are not legally obligated to do so.

Personal chemistry is crucial in establishing long-term business relationships, as many individuals prefer to work with someone they enjoy spending time with, regardless of their competence.

Another crucial factor to consider is ownership of the advisor's firm, which may not be immediately apparent to many investors but is equally important as the other factors mentioned.

If investors raise the issue of independence during the vetting process, some advisors will claim their independence to be more objective. This is because they do not have sales quotas, sell proprietary products, or face other conflicts commonly associated with large, publicly traded firms.

Good advisors can be found in various forms, including those who run their own businesses, work for large corporations on Wall Street, and everything in between. However, it's important to recognize that even independent advisors may not operate in a conflict-free environment.

The report by Echelon Partners reveals that private equity was involved in over 66% of the merger and acquisition deals involving registered investment advisory (RIA) firms last year, which totaled 307 transactions worth more than $575 billion in assets.

Private equity firms, led by sophisticated investors, have a simple mandate: acquire assets, hold them for a short period, and sell for a considerable profit to reward themselves and their shareholders. The emphasis is on expanding margins, and if an acquired firm must slash costs and charge higher fees to achieve that, then so be it.

It is evident why this method may result in a decline in client service. No one enjoys paying more for less. Despite this, when private equity-backed deals are announced, all parties involved typically portray a positive outlook, asserting that the additional capital will bring about "scale" and enhanced efficiencies. Consequently, they claim that the end result is improved client service.

Is it possible for firms to succeed if their business model is based on how much money they can extract from clients?

A recent academic paper suggests that private equity issues may be even more complex. In December 2021, researchers at the University of Oregon released a report examining the impact of private equity on advisor-client interactions. Their conclusion? Private equity creates a conflict between advisory firms' profit motive and ethical business practices.

A study of 275 RIA firms found that the number of advisors who commit misconduct increases by 147% after a private equity takeover. Although the misconduct rate of these advisors remained below the industry average, the trend is clear: Private equity investments in wealth management firms are associated with a higher likelihood of advisor misconduct.

The trend is undeniable: Private equity firms investing in wealth management firms have a higher likelihood of their advisors engaging in misconduct.

When customers feel valued and supported, they tend to have higher levels of satisfaction, which often leads to increased profitability.

It is crucial for investors to be aware of the ownership of their advisor's firm, as focusing solely on meeting targets can lead to a decline in service quality.

Detlef Schrempf, Coldstream Wealth Management's business development director, had a 16-season career in the National Basketball Association.