When shopping for a financial adviser, it’s easy to get excited. A savvy friend heartily recommends a seasoned pro. You confirm this pro has a thriving practice, a clean regulatory record, an impressive office and a crisp, cheery staff. All systems go.
But despite early indications that you’ve found a winner, you may soon think otherwise. Whether it’s the adviser’s personality, poor service or questionable portfolio management, your enthusiasm can quickly wane.
“The whole process is a black box,” said Pam Krueger, founder and chief executive of Wealthramp, an Osterville, Mass.-based service that connects consumers with vetted, fee-only advisers. “You’re throwing a dart in the dark.”
What distinguishes a good match from a mismatch?
Once you’ve confirmed that the adviser is a fiduciary with no disciplinary red flags (use BrokerCheck) and has sufficient experience and expertise to address your needs, the next question involves fees. Early on, ask if the adviser only accepts new clients with investment assets above a minimum amount.
Otherwise, an adviser can court you and win you over, only to tell you that you need to invest a certain minimum amount to become a client. You weren’t planning to fork over so much at first, but now you’re sold on the adviser so you transfer a larger chunk of your net worth than you’d ideally like — leaving you with a bad taste from day one.
An adviser’s communication skills come into play as well. Initially, a wealth manager’s professed track record of “consistently beating the S&P 500 SPX ” thanks to the firm’s secret sauce of “proprietary research” paired with its “proactive investment philosophy” can sound impressive.
But soon enough, you may feel like a supplicant basking in the adviser’s self-proclaimed wisdom.
In the first half-hour of conversation, you want an adviser to do more listening than talking. That’s a better indicator of a good match than someone who brags, lectures and exhibits false modesty.
“Beware of the slightest hint of arrogance,” Krueger said. “If the adviser launches into their investment strategy before they’ve listened to you and what you’re trying to accomplish, that’s not a good sign.”
Better yet, note whether the adviser asks succinct questions — and then lets you answer at your own pace. Beware of interruptors who try to finish your sentences or jump to conclusions. Successful advisers will affirm your concerns with empathy, probing to uncover your goals, fears and values as they relate to money.
As long as you like an adviser’s communication style, you may not need to meet face-to-face. Increasingly, clients are willing to hire someone from afar and rely on video chats, screen sharing and e-signature software to conduct business.
Get what you pay for
Remote advisers who run a virtual practice can offer lower fees than their peers who pay for snazzy office suites. As many as 70% of Krueger’s incoming clients — from baby boomers to younger people — say they’re willing to hire a long-distance adviser.
On the other hand, you might seek out an adviser with the trappings of a heavy hitter. Krueger cites a client who selected an adviser “with a gorgeous office on the 37th floor because she felt she needed that fortification” in making a choice. “I’m more comfortable in that adviser’s environment,” the client told Krueger. “I feel that adviser is more serious.”
Traditionally, many advisers have charged clients based on a percentage of assets under management (such as 1%). Some clients transfer more and more of their holdings to the adviser, who in turn makes more money as a result.
Nowadays there are a wider range of fee-only models. Examples include paying an hourly rate, a monthly or annual retainer, a flat-fee or per-project price. “If you own a lot of real estate or other businesses rather than stocks, advisers may charge you a percentage of your net worth” rather than a percentage of your investable assets, Krueger said. “Fees should be based on time and complexity.”
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