What would you do if your personal physician or long-time lawyer unexpectedly died? Or announced his or her plans to retire? Or upped and moved far away?
A seismic change like this can be difficult to deal with. Such a disruption may cause you to re-think your priorities and force you to find a suitable replacement. We place so much trust in close advisors that we can sometimes take a professional relationship for granted … until it is gone. With family, professional and health concerns often uppermost in mind, it pays to have someone you can count on for wisdom and caution minding your money.
Finding a new financial advisor is actually a two-step process. First, you need to locate prospective candidates, either through referrals or by perhaps by happening upon someone online, via a magazine or a television program. Secondly, you need to determine whether an individual can satisfy your requirements. “Most investors care the most about two things,” said David Marotta, of Marotta Wealth Management in Charlottesville, Va. “They want their portfolio’s value to go up and they want to get a call back from their advisor within 24 hours.”
If you’re dealing with a large financial institution, you likely would have been assigned a qualified junior advisor to work alongside your financial consultant. “If the financial consultant is employed in a regional or national advisory or brokerage firm, such as Merrill Lynch, Morgan Stanley, Fidelity etc., then the firm will assign the client and accounts to a new advisor,” said Anton Bayer, the CEO of Up Capital Management in Granite Bay, Ca.
“If the financial consultant is independent with licensed associates or partners, or affiliated with a broker dealer, then typically the associates, partners or broker dealer assign a new financial consultant,” Bayer added. “The least favorable scenario is if the financial consultant is a small independent advisor with no partners or licensed associates and not affiliated with a broker dealer. Then it is possible there is no succession plan for the client. In this situation, the assets remain with the custodian but no financial consultant is responsible for the accounts. The client will need to appoint a new financial consultant or transfer the account to a new financial consultant.”
Whether you’re searching for an advisor or evaluating a new one assigned to you, treat it as if you’re vetting a new employee. You need to be assured about the new consultant’s style of investing and doing business, in terms of the investment strategy, regularity of calls, texts or emails to keep you in the loop.
These folks work for you – not the other way around.
Finding the Best Advisor for You
As with other major decisions, it is often best to rely on sage advice from friends, relatives and colleagues who can give you the benefit of their wisdom and experience.
“Getting a recommendation on a financial advisor from a friend helps you build confidence in the decision,” said Marotta. “A personal recommendation can also help because it could weed out who you shouldn’t go to,” Marotta said. “Friends will tell you honestly, ‘He’s OK – but not great.’ They can give you specific advice about whether an advisor will return your calls promptly and what kind of service you can expect.”
You can also find an advisor by visiting the National Association of Personal Finance Advisors (NAPFA) website. The site allows you to search for advisors in your area or track down a specific individual.
It can be rather daunting to decide who might be the best person to help you manage your money. Michael Solari, of Solari Financial Planning in Bedford, N.H., suggests seven basic, getting-started questions:
- What are the fees to manage assets?
- What is your investment philosophy?
- Have you ever been cited by a professional or regulatory governing body for disciplinary reasons?
- Do you provide financial planning advice and manage investments?
- Will you be working with me directly or will I be working with other associates?
- How often do you provide checkups/reviews?
- What is your succession plan?
Picking the right advisor often hinges on your investment needs. “There are a couple kinds of people,” said Dena Minning, who manages $16 million for Personal Asset Management in Treasure Island, Fla. “Those that know what they want, like and need and those who don’t know. For the first kind of person, they would necessarily be knowledgeable about what investments were good and may typically just have been using the advisor as a sounding board and to place trades or search for ideas.”
Minning stresses that trust is the key concept in any kind of relationship. “For the investors who don’t know what they want or need, it is critical to have an advisor they can trust. And, to completely trust an advisor, the investor should insist on having an advisor who commits to acting in a legally binding, fiduciary capacity. That means the advisor commits to putting the investors’ needs before their own.”
This is an important point. Someone who smells a commission from your earnings will try to sweet-talk you into becoming his or her client. One way to test this person’s level of integrity is to examine his or her credentials, even going beyond the standard academic achievements. For instance, Minning said that she belongs to a group of advisors called The Committee for a Fiduciary Standard, which commits, in writing, “to ensure that any financial reform regarding the fiduciary standard, 1) meets the requirements of the authentic fiduciary standard, as presently established in the Investment Advisers Act of 1940, and 2) covers all professionals who provide investment and financial advice or who hold themselves out as providing financial or investment advice, without exceptions and without exemptions.”
Before you do business, you can do a simple Google search of the advisor’s name and add a heading such as “legal actions” or “disciplinary hearings” to see if this person has had any formal problems.
“Another advantage that the novice investor should insist upon would be to have a fee-only advisor,” Minning said. “This is what NAPFA advisors are. Fee-only ensures that the compensation of the advisor will not drive the investment solution, since fee-only advisors get paid the same amount regardless of what they recommend. Fee-based and commission-based advisors can and do get paid dramatically different amounts, depending on the investments they choose for their clients. And, that fact alone is most responsible for people being sold bad investments.”
Competence is also crucial. To measure that, examine his or her devotion to the craft of providing investment counsel. Advanced-education degrees and citations are a good start. For financial planning, does your candidate have a Certified Financial Planner (CFP) certification? For tax advice, how about Certified Public Accounting (CPA) expertise? And for insurance and estate-planning matters, has your advisor attained mastery as a Chartered Life Underwriter (CLU)?
What professional services does your advisor offer you to help make decisions about your investments? Some advisors make available their partners, as a way of providing additional expert advice. “We have a full-time analyst who is intimately familiar with the portfolio allocations and securities and discusses these subjects with the clients as well,” said Susan Spraker, founder and chief executive of Spraker Wealth Management Inc.
A financial consultant who has a specific area of knowledge can be a comfort when a specific question arises. “This is one of the reasons we believe that firms with multiple advisors do better for their clients,” said Marotta. “It also allows advisors to specialize so that if you get a junior advisor they are the best at their specialty.”
The Bottom Line
It can be a jolt when a long-time financial consultant leaves your sphere, because he or she has retired, passed away or been fired from his or her investment firm. One thing for sure: You shouldn’t make a snap decision or jump to a hasty conclusion. Just as you wouldn’t take medical advice from a complete stranger or grant power of attorney to someone with shady credentials, you’d be reckless to allow an unproven stranger to have an influence on your finances.