Linda and her husband Stan heard me as a guest on a podcast recently. They are retirees, living near Daytona Beach, Florida, unsure of “just what course to take with our moneys.”
Linda thought I sounded like “just what we are hoping to find, someone who speaks our language, who is honest, who can help us come up with a plan for how to make our money work and last, and maybe even help us figure out how to handle our estate.”
With that in mind, she hunted me down and called, hoping she could hire me to be the family’s financial adviser.
She was, of course, wrong about me. Not about the honesty or speaking the language part, but about how I could help her. I’m a journalist, not a financial planner; I don’t have clients and don’t sell financial services.
Even as I told her that, Linda was hoping she could persuade me to accept some of her money for advice, despite never having heard of me until I wound up as a guest on one of her favorite financial shows.
That’s no way to pick a financial adviser.
Linda and Stan are lucky that they didn’t hear some fraud on the radio, who would have been only too happy to take their cash.
Of all of the blunders an investor can commit, few have more impact on their future than hiring the wrong adviser. And yet, most people put less time and effort into selecting an adviser than they do in buying a new toaster.
The results — a mismatch between individuals and their chosen financial counselors — are something I’ve heard often, largely because I wrote two books on choosing and working with financial advisers.
Decades of meeting with advisory customers have proven to me that even the people who wind up happy with their adviser messed up the selection process, and relied more on luck than information.
That starts right at the beginning of the process, which for most people isn’t an organized search.
Typically, individuals, couples and families come to the conclusion that they need financial help after years of trying to build a nest egg and manage money on their own. By the time they decide to get counsel, they have an idea of what they’re looking for.
As a result, any adviser they meet — whether it is at a cocktail party, from a friend’s recommendation, through a web search, etc. — is almost certain to sound savvy and smart even if all they’re doing is collecting basic information about a potential new client.
Providence didn’t bring you “the right person at the right time”; human nature just makes it seem that way.
The tone and tenor of the advisory relationship — the pull and tug necessary to develop an investment and money-management plan and the emotional discipline to stick with it — isn’t evident until later on.
Without that, individuals can find a better match only by interviewing multiple candidates for the job, thus creating a measuring stick for deciding whom they trust to be the best fit for their lives.
You want a fiduciary — someone dedicated to putting your interests first — and you may prefer a nearby location, a certain pay structure (flat fee versus assets under management or commission, for example), but you’re not just looking for someone who “checks the boxes” on your wish list.
You are seeking out your financial partner, whose “bedside manner” is going to make you comfortable following their prescribed path.
Either before or after those initial interviews, any advisory candidate should be put to a background check; it may seem like a pain to verify a broker or investment adviser — as well as the firm they work for — through FINRA’s BrokerCheck service (brokercheck.finra.org), but nearly every advisory fraud you’ve ever heard about could have been avoided simply by contacting federal or state securities regulators to search for past problems.
In addition to the FINRA database, connect with your state securities regulator (get contact information from the North American Securities Administrators Association at www.nasaa.org), and if the adviser sells both securities and insurance, find out if there are any complaints on file with your state’s insurance commissioner (contact details available at naic.org, website of the National Association of Insurance Commissioners).
Don’t rely on an adviser’s credentials to be a sign that they’re good at the job; the credentials aren’t a true measure of how someone works with clients.
Don’t blindly trust the recommendations of friends and family members; there’s no guarantee they picked their adviser properly. Moreover, many of Bernie Madoff’s victims were folks he met at his country club, on the golf course, at charity functions, or through some personal affinity; he counted on those ties raising trust and lowering resistance.
Focus mostly on what you are getting for your money, the service being provided and the price you are paying for it. You’re looking for a reasonable balance between services, costs, and method of compensation.
Examine sample plans — so you know what you will be getting — and ask for references; stay focused on satisfaction levels and how the client likes working with the adviser and stay away from “How much money did they make you,” because that reference’s risk tolerance, resources and needs could be very different from your own.
Mostly, keep asking questions. An adviser who won’t answer your queries before they have your money is going to be tough to work with once you have given them some control.
While my books offer dozens of prospective questions, you can get by with about 10. The CFP Board of Standards has a good list — and a lot of valuable search-oriented help — at letsmakeaplan.org.
If you’re not willing to put in the work up front, you shouldn’t be surprised when you are disappointed later. That’s definitely not the outcome anyone wants when they hire a financial adviser.