|Copyright:||(c) 2010 The Star-Ledger. All Rights Reserved.|
|Source:||Advance Publications, Inc.|
I have given countless talks over the past 15 years to groups of people interested in hiring financial advisers or working better with the helpers they have, and I typically poll my audience to learn about their experiences.
Plenty of people do everything wrong in the hiring process and still wind up happy with the outcome, but you should still try to avoid the common mistakes. If you do, your chances of living happily ever after — or at least until the adviser retires and you have to hire a replacement — are infinitely better than if you leave it up to fate to bring you someone you can work with.
Big mistake No. 1: Interviewing just one candidate
You have come to a point in your life where you know you need help. Emotionally, that makes you like a man dying of thirst, unable to tell a mirage from reality and willing to drink sand if he can be persuaded it will make him feel better.
The first adviser you meet could be a complete idiot, but almost certainly will sound great to you. That’s because his spiel makes it sound like he can solve your problems, and you lack the know-how to tell if he can’t, and you haven’t compared him to any other adviser to establish how you truly feel. You have no clue if he is selling you a bill of goods, a one-size-fits-all plan that maximizes his take and minimizes your service, or if he truly is a cut above the other helpers in your area.
Another reason why investors hire the first person they meet is that they got the adviser’s name from a friend or relative whom they trust. That colors their judgment, because of the way they feel about the person making the referral, or the way they envision this adviser helping them live the lifestyle they see their friend or relative enjoying.
Years ago, a leading financial planner in
I’m sure the people she referred to them took her word as gospel; four years later, one of those advisers was under indictment for fraud.
Big mistake No. 2: No background or reference check
“He’s got a fancy office, drives a nice car, and has a lot of rich clients,” is not a background check; it’s a fitting description of almost every financial adviser charged with fraud in
Your retirement nest egg, college savings, and more are the biggest, most important assets you will ever accumulate and try to grow, and yet most people spend more time trying to figure out which vacuum cleaner or microwave oven is the best value for their money than when choosing a financial adviser.
Moreover, they rely on shallow logic as a reason to avoid a few phone calls or a search online.
The adviser is on the radio, so he must be good. He’s been quoted in the newspaper by that columnist I like, so he’s qualified. He works with someone I know, and she has a nice house.
Now I’ll let you in on a few secrets that may change your opinion of the advisers you see in the media.
For starters, most journalists will call anyone to be a source when they are on deadline. They haven’t done background checks or vetted the so-called expert; they just got someone who seemed right, and who could talk about the subject at hand.
The radio fallacy is another good one.
Most financial advisers on the radio have paid for the time, meaning they bought their own show to use as a personal advertising vehicle. The information they give may be fine and dandy, but the radio station didn’t check their credentials or make
sure they’re solid advisers; it simply cashed their check and gave them access to the airwaves.
Big mistake No. 3: Focusing the search on cost or payment style
Cost is an object, but it’s not THE object.
The same goes for payment style, the various methods of working and compensating an adviser discussed in the last chapter.
Cheap advice is, well, cheaper, but not necessarily better, appropriate, or the elusive “right for you.”
If you save a few hundred dollars in fees to the adviser, but wind up with someone who is incompetent and whose decisions cost you thousands of dollars down the line, you did not get a bargain.
Likewise, if you go for more expensive counsel but can’t get the quality of service you desire, you’ll be unhappy no matter how respected the adviser and how sound his advice.
Look at what you are getting for your money and determine a reasonable balance between services, costs, and method of compensation.
If all you are looking to do is add a mutual fund or two that you can throw some money into every month and hold for years, you shouldn’t be paying a big fat fee for an overall asset-allocation plan.
But if you require a needs analysis and a plan of action to get you from where you are now to your financial goals, you don’t necessarily want to make your lifetime decision based on “I hate paying commissions” or “This planner charges less by the hour.”
Big mistake No. 4: Expecting credentials to make an adviser “good’
There are so many professional credentials and designations out there for financial advisers that you could drown in a sea of alphabet soup.
That said, every credential is different. Some are worthwhile, some are bogus. Within every credential, there are advisers who are good, and others who stink.
The real question about credentials boils down to “Does this adviser have the expertise I need?”
Credentials help to answer that but, on their own, they say nothing about the individual’s personality, manner, disposition, or ability to inspire your “emotional discipline.”
Your search for advisers is about finding “the right person,” not “the person with the right credentials,” and there is a big difference. You don’t just want a skilled doctor, you want one with the right bedside manner. I know plenty of certified financial planners whose personal style is so strange, different, or off-putting that the only way I could work with them is if I was in a coma.
Hire a person, not their credentials. When times get tough, it’s going to be the human being — and not the letters after her name — that you rely upon.
Big mistake No. 5: Expectations and results based entirely on returns
People hire advisers because they need help and want to get their finances in order. They fire advisers because they don’t earn a “big enough” return.
It’s a recipe for disaster.
If you are an average investor, you’re looking for a partner, someone who will help you develop strategies that enable you to reach your long-term goals.
In most cases, achieving that success requires participating in stock market gains during good times without losing your shirt when the market sours.
For most consumers, it’s more about avoiding surprises and losses than it is about getting rich quick.
And yet, when push comes to shove, advisers get dumped because they “failed to beat the market” each and every year.
What most people want from their adviser is long-term performance that allows them to ride the market rollercoaster and get off at the end with a big smile on their face.
Alas, too many financial-services customers want to jump off mid-ride.
Despite what they said when they signed up to work with an adviser, they want to change the criteria for judging their counselor mid-stream, typically at just the wrong moment.
Big mistake No. 6: Letting the adviser control everything
You may be looking for hired guns to help with your finances, but there is one key phrase to remember in all this: “It’s my money.”
Advisers are partners in your financial success, but you have the most at stake and, therefore, you run the show.
With that in mind, you are entitled from the very beginning of the relationship to
ask about anything you
want, from why a recommendation was made to why something cost more than you expected.
You need to be treated like “the boss,” too. Some advisers treat customers shabbily when the client doesn’t take their advice or make a suggested move.
That reaction is an instant warning sign that the adviser respects his position more than yours and may have put his interests first.
Big mistake No. 7: Hiring friends and relatives
In the mid-1980s, my wife, Susan — the most patient and understanding woman in America — was persuaded by a friend that we needed some financial planning help.
The friend just happened to be a new financial adviser,
and she wanted to be the one to advise us, fresh out of college and newly married, as we started building our lives together.
I didn’t think we needed help, but Susan sold me on the idea that Sandra, her friend, could help us find better financing options for our first new car. Sandra also could provide a second opinion to my judgment on mutual funds and asset allocation.
Best of all — and Sandra gave us this in writing — it was a money-back deal. If we weren’t satisfied or Sandra did not provide us with ideas and information we didn’t have on our own, we could get our money back.
So, I signed the contract.
Obviously, the selection process was all wrong. No references, no background check, pretty much every mistake in the book.
The results were, sadly, predictable.
The funds we owned were better; the bulk of her advice was about improving our cash flow so that we could purchase insurance products that, at the time, we had no need for and no real way to afford.
Sandra advised us that the loan deal I had found was better than anything she could come up with.
We’re still waiting for our money back.