This is most frustrating for me. I continue to come across individuals who have had less than satisfactory results from working with a financial advisor…
I had a meeting yesterday morning with a friend. He wanted to learn more about my business, and see if it made sense for me to help him manage his accounts. One of them, a trust account for one of his two sons, was being managed by a full-commission broker. This broker managed to turn $9,000 into $3,000 in just one short year. Oh, and by the way, he charged $75 a trade, and traded frequently in and out of micro-cap positions, that is common stocks of very small companies.
I had coffee last week with a woman who was looking for a fee-only advisor. She told me about meeting earlier last year with two very nice and apparently capable guys, who she thought were fee-only. After 3 meetings and about 4 hours of her time, they finally suggested that she purchase a variable annuity. They were not fee-only. Fee-only advisors do not make any money from commissions or transactions.
I had dinner last year at my sister’s house. A friend from high school was visiting. She asked what I was doing now, and came close to an audible gasp when I told her how I charged for my services and what my fees were. She told me that she paid her financial advisor just $100 the previous year. Her advisor is an insurance saleswoman at John Hancock, and my high school friend had no idea what she had in her portfolio or how much in commissions her “advisor” was making.
I met a woman earlier this summer. She is a widow. We were having a delightful conversation at a mutual friend’s home. She asked me what I did for a living, and when I told her she literally took a step back, away from me, and her entire demeanor changed to the negative. It seems that her “advisor” at the time of her husband’s death executed a couple of transactions that made perfect sense for him, but none for her…his client.
Do you see any pattern here?
The most important thing in choosing an advisor to help with your money is to ask questions. Detailed questions. Probing questions. Questions that uncover the motivations and compensation of the advisor. Questions that are critical for your well being…
- How are you compensated. Are you paid at any time by a commission or other fee not paid directly by me?
- Are all forms of compensation and potential conflicts of interest disclosed in writing before the fact?
- Are you a fiduciary? Are my interests placed ahead of yours?
- Who will I be dealing with on an ongoing basis? How do you communicate with clients?
- Can you tell me about some of your other clients? How do you help them and add value to their situation?
- Will my assets be held at a third-party custodian? Which one? Can I use one of my choosing?
- How do I cancel if I am unhappy? Are there any cancelation fees or redemption fees?
- Can you explain your investment process? Your work experience? Tell me more…
- Have you ever been disciplined by any regulatory or professional organization?
- Do you have any professional designations? What do they mean and what did you have to do to get them?
And, if after asking and getting the right answers, you find the reality is a bit different, run. Run fast and far. Never forget that it is your money. Yours.
You better understand what is what is going on…
