Choosing an Advisor Series. Part III.
written by Brian Dudley, CFP® Founder+COO
What is value? It’s defined as the regard that something is held to deserve; the importance, worth, or usefulness of something or a person's principles or standards of behavior; one's judgment of what is important in life (thanks, Google). Each one of us has our own value set. Something valuable to one person may be of no or little value to another. With this being said, there are perceptions of value within the advisory industry that need to be discussed when choosing the right financial advisor for you. In the last part of this series, I discuss three different areas which may seem to add value or stature. They don’t (or shouldn't). I will discuss why these don’t matter and what actually does (in general). Again, value is in the eye of the beholder, but if you’re paying someone to manage your finances, you deserve actual value.
A Suit Can’t Solve Your Financial Problems
In 2007, I was in New Jersey at a Citi Smith Barney advisor training. I had just left BofA with a team and was informed that I would be sent to NJ for two days overnight. Much of the training was the behavioral aspect of the sales process. It wasn’t about portfolio management, or here’s why you should be a CFP® and how to work through different planning scenarios. It was sales training. One of our breakout sessions included a guest speaker from a consultation firm on how to dress appropriately in our business. The speaker brought individuals to the front of the conference room and discussed what she liked and what could be improved. She discussed the shoes, the tie patterns, shirt colors, and what suit type younger advisors should wear compared to those advisors who were older. We left knowing what we needed to wear to impress clients. I am not sure we left knowing any more about how to actually help clients with their finances which was the real reason they hired us (well, in theory. They hired us as sales people. That's what this industry was, or is, or kinda both was and is). Fast forward to today, thirteen years later, the world has changed. Tech has taken over and wearing a t-shirt to work isn’t abnormal. Finance still has yet to really adopt this, but some of the firms in New York or San Francisco have. Listen, I still wear a suit for a formal occasion. With clients, I’ve lost the tie, and with emerging wealth clients, the jacket may be optional. Dressing nice doesn’t mean dressing up. You can look well-put together with a short-sleeved shirt and jeans. I am not advocating for sloppy dress. In fact, if someone is dressed like a slob (even with a suit and tie on) it may mean they are not well organized and you may want to look elsewhere. They may also surprise you. However, what I am saying is that the suit doesn’t make the man or woman. Don’t let the dazzle of a custom suit, shiny watch, and fancy shoes blind you from your real pursuit: great financial advice.
That’s the perception of value.
Big Names, Big Lights
Of course I knew of all of the big financial institutions when I first graduated college. How can you not if you’re a finance major? So when the team I worked on was recruited to one of those firms, I was wowed. This was my chance to make it BIG. The recruitment process was great. Fancy lunches, extravagant dinners, and we even met a corporate head at the Wang Theatre in the middle of the day during a large corporate gathering. Such a cool experience. These big names carry big bravado. “Oh, you work with Merrill? Wow, you must be rich.” (not sure this was actually said, but it’s my version of how Showtime’s Black Monday would convey it-well, until Mo would tell them to eff off). I thought that now that I had a big bad name behind me, that anyone would pick up my call and would be silly not to take a meeting. Well, as I said above, we moved in 2007. Immediately after we moved, the markets began to crash, and we went into one of the worst points in our country’s financial system’s history. That being said, we recovered. The big names that got bailed out became even bigger. The name, the access you can get to other teams at these firms without having to leave (lending, private markets), and the fact that at a local BBQ you can tell someone you work with Morgan or Merrill still exists. The problem is your mutual fund asset allocation portfolio is overpriced and comes with no custom plan. I took over a relationship for an organization that saw their Morgan representative once in two tears. A million dollar account, overcharged, under-advised. No other planning services offered. Let me repeat that. A $1 million (plus) account that received in-person or even virtual service once in two years. They were paying 1% to that advisor of assets under management. So for $13,000 in this case, they got little to no value. Now, that’s not in every case. I recently worked with a financial planning client on an hourly basis to have an independent review of a recommendation made from one of their two advisors. Part of this process was looking at his account at Morgan and the latest documents he has seen in reviews. This particular advisor is providing full-planning services, using a mix of low cost ETFs, stock, and funds (we aren’t here to argue asset management technique) for their strategy, and the client is consistently provided with an update on where they stand financially. They even offered to run this analysis for the client for no additional charge. My client’s wife insisted that he get an independent review and that is the only reason for my involvement. I complimented this advisor to my client and said that he found a good one. Great financial advisors are everywhere. Don’t let the big name be the only reason for why you choose yours.
That’s the perception of value.
"Oh, you know the advisor on TV and Radio? That’s mine!"
You want to know how media companies make money? Advertising. Duh, Brian. Well, your advisors know that and also know that one way they can reach a bigger audience is to advertise on the radio and TV (usually, local). Now, big firms will run TV ad campaigns to get overall brand recognition. Smaller firms or independent advisors may not have $50MM to run a national TV campaign (wait, they definitely don’t), but they may have the funds to secure a local radio or TV ad. I’ve even seen the ones who highlight their own book! By the way, most of these books are ghostwritten. “Call me for ways to protect you in bad times!” Perfectly timed for when markets fall fast and you are glued to your TV vying for answers. “Oh, and check out my free book on how you can make money in any market.” LOL. Really? Do not let the local tv or radio ads make you think that they must be good at what they do. Anyone can pay for an ad.
That’s the perception of value.
So What’s Real Value?
I recently had a former colleague who is an advisor ask me when my next blog post was going to be and what it would be on. I told him the subject. He said, “well, a suit may not be valuable to you but it may to others.” True, I suppose. You may want your advisor to play dress up. The reality is that if there is no actual substance nor additional value for you as the client, it does not truly matter. If that is all you're getting with a wrap mutual fund mixed in, you are overpaying. I then told him to enjoy his strawberry seltzer on his boat (inside joke; you’re welcome, bud).
An advisor provides value by:
Listening to you. Advisors should understand your goals and values and then analyze your net assets. Goals, values, and money make up your financial DNA. This is who you are. If one component is missing from this equation, you may not be receiving your true value (future blog coming on aligning values with investments). That’s real value.
Understanding that emotions drive investment behavior. You are human. Your advisor should be, too. They should, however, be able to separate your finances from your emotions (because you can’t’). They should be able to help you make unemotional decisions. They should be a valuable resource when you are clouded. That’s real value.
Doing more than just investing your money. This. Is. Huge. There are soooooo many “advisors” who do nothing but asset allocate and discuss their reasoning at each meeting. What about your budget? Your cash flow? Your tax situation? Your estate? Your insurance needs? Your family relationship and how it may affect your finances? Etc. If you are paying a percentage of your assets to an advisor to manage your money it should mean access to all of this. If you don’t pay an advisor that way, all of what you want accomplished should be defined at your engagement. Period. That’s real value.
Being a resource for you. Your advisor should have the ability to connect you with a tax advisor, an estate planner, a property and casualty insurance contact (home, auto, business), and even a builder, if needed. Your advisor should be a go-to for when you need things done. Some teams will even have some of these services in house. That’s real value.
Communicating to you in good times and in bad. Believe it or not, a lot of advisors hide when tough markets rear its ugly head. This is a tough value to find ahead of time unless you know someone they have worked with who says that they communicate at all times. You can, however, ask how often that advisor communicates to clients and how they go about doing that. If they don’t follow through with their initial stated process (or agreed upon change as some clients don’t want to talk as much as an advisor does), then move on. There are advisors who do follow through. They do communicate often. They do so in good times and in bad. That’s real value.
Perception is sometimes reality. However, if you want real value, a perceived version shouldn’t be acceptable.
As always, if you have questions or comments, we are here to help.
Thank you for reading,