I don’t have a money manager; my husband and I handle it ourselves.
We’ve thought about it, talked to some potential managers and, except for a guy we bought some insurance from 5 years ago, decided it just wasn’t worth it.
But maybe you feel differently?
Do you hate reading quarterly and annual reports; does looking at an asset allocation pie chart drives you to drink? Or you just don’t feel capable of making big financial decisions yourself.
If you feel like a financial advisor may be able to help you achieve your goals and relieve you of money worries, then by all means hire one.
Before you transfer all your accounts into their system, it’s critical to find the right one for you. It’s probably not going to be your cousin Louie just because he needs the business and not your parents’ “guy” because you assume you can trust him.
Where to find good managers… by mail?
If you’re in the mature age category, you probably get invitations to dine at local restaurants while listening to an advisor’s presentation.
Go ahead – have a couple free meals and see what they’re selling. Plan on giving them an hour or so at a private appointment after the dinner if they’re at all credible. Otherwise you’re wasting your time and their money. But if they give you the heebie jeebies you’re certainly not obligated.
Ask around if you want to emulate the referrer’s financial position.
Asking friends, colleagues, other service providers (accountants, bankers, real estate agents) and yes, even relatives, for referrals is another classic way to find an advisor. Ask only those who are at or above the financial level you aspire to – unless you’re looking to downsize your assets. Be sure you name drop when making an appointment – the advisor will want to thank the referring party.
Or, do your own research.
You can look online, through the local chamber of commerce or even the “
Though the quality of a money manager’s website doesn’t necessarily mirror their financial skill, an advisor who at least attempts to provide the online researcher with some information about their experience and management style can help you narrow down the field.yellow pages” for advisors. Though money managers have traditionally been local, the internet is starting to evolve into a medium you can use to outsource your investment and planning functions regardless of where you live.
If you follow all these methods of obtaining potential advisor’s names, you could end up with a daunting list of folks to interview. If you’ve got the time, set appointments and ask your questions in person. But, if that’s not an appealing thought, you can gather the info via phone or email.
Be prepared, whether you were a boy scout or not.
Before you start making calls and writing emails, you need to get organized.
Go dig up your:
- Bank and brokerage statements. Make copies and remove the account numbers so you can share these with potential advisors.
- List of assets. Real estate, pensions, inheritances, art and collectibles should all be documented. Personally, I don’t think cars you use for transportation or jewelry you wear or even artwork you bought for personal enjoyment should be included as assets but most advisors will disagree with me.
- List of financial obligations. Dependents, outstanding loans, judgements, tax liens – come clean with anything or anybody you’re going to have to pay.
Know what you want.
You’ll also need at least the broad outlines of your financial goals. Maybe you don’t know exactly how much money you’ll need to retire but you’ll need to have some idea of the type of lifestyle you want to live now and into the future.
If you have young children, what kinds of education and assistance do you want to provide as they grow up?
Is there a charity or a political or social movement that warrants your financial support?
Dreams are fine here, just be sure you categorize them into wants and needs and cover the latter first.
Listen to what they say or don’t say…
Now you’re ready to get some input from the advisors you’re considering. But, instead of asking for specific advice, you want to see what their process is. How do they come up with alternatives and how do they help clients choose the right products and services?
And how they get paid.
There’s a big war going on in the advisor community about how advisors should be paid and how these structures affect the advisor’s recommendations and their loyalties.
A fee based advisor will be able to give you a schedule of what his services will cost you. Most will be based on the value of the assets they manage for you but some will have a flat fee or a combination of a basic flat fee and a percentage of the assets. Occasionally you’ll find one who takes a percentage of the gains (like hedge funds do).
An advisor that offers to help you without charge is earning fees from the products he sells you. As long as you clearly understand this, and he’s willing to disclose those fees, you can work with this system too.
Be honest, with yourself and the money manager.
Almost every advisor you meet with will want to determine your “risk tolerance”. Don’t lie to yourself (or the advisor) about this. If you would hang yourself if your portfolio dropped by 10 or 20 or 50 percent, be honest with the advisor. It’s much better to develop a plan you can live with long-term than to be jumping in and out as the markets swing and your emotions dictate.
You can start by taking this “test” from Bill Miller at AdvisorOne.com where he tells fellow advisors:
“After months of extensive study and in-depth conversations with some of the financial world’s leading minds (who happen to be at my local tavern), I have come up with the definitive risk tolerance questionnaire. By learning the answers to these five simple questions, the savvy rep will now know exactly which investments are right for a particular client or prospect.”
Which of the following activities would you most enjoy?
A. Bungee jumping off the Golden Gate Bridge
B. Reading Oprah’s book of the month
C. Swatting a hornet’s nest with a baseball bat
If you could be a dog, which breed would you be?
A. Pit Bull
B. Teacup Yorkie
C. Mexican Hairless
Who is your favorite TV newsperson?
A. Katie Couric
B. Walter Cronkite
C. Keith Olbermann
What type of music do you like to listen to?
A. Explicit Rap
B. Broadway Showtunes
C. William Shatner’s Greatest Hits
Where would you most like to vacation?
A. Alaska Wilderness
B. Naples, FL
C. North Korea
“Tally up your score by the letter and the number of time you choose that letter.
For example: 1 A, 3 Bs, 1 C equals a B for risk tolerance.
Mostly As: This group appreciates a high risk/reward ratio.
Feel free to offer this group private placements, oil and gas deals, and highly leveraged real estate programs.
More Bs: This group has absolutely no tolerance for risk.
Whatever money they decide to take out of the pickle jar buried in the backyard and invest had better be safe. Certificates of Deposit and Treasury Bonds are a walk on the wild side for this group.
Majority of Cs: This group is crazy and unstable.
You do not want these people as clients. They will make your life a living hell. Tell them you are not a very good financial advisor and recommend they go visit your least favorite competitor.”
If you appreciate a bit of humor, maybe Bill Miller deserves a spot on your potential advisor list!
Next up: A list of questions you’ll want to ask each potential advisor…