Finding the Right Financial Advisor

As an estate planning firm, we deal with a lot of financial advisors.  Some are very good and some are not.  Like the article below, we recommend interviewing several to determine which one you are comfortable and then testing at least two of them to see if you are good with the results.  Remember, you are going to need them and you really need to be comfortable with them.

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To Find the Right Financial Adviser, ‘Do a Beauty Contest’

SAN FRANCISCO ” When my husband and I came into some money, we dutifully interviewed potential financial advisers, from big banks to boutique firms. Recommendations and interviews, however, failed to persuade us to hire anyone.

At one San Francisco bank a wealth manager promised VIP theater tickets as a perk if we picked her. As we walked out of the bank’s gleaming granite-clad headquarters, I said, “Our money would be paying for this.”

Freebies and dazzling buildings were impressive, but we knew that as customers we’d ultimately underwrite these ” and theater tickets seemed to us no proof of performance.

Frustrated, I turned to a friend who grew up around money and had far more experience with investing. “You need to do a beauty contest,” she said.

Pick two companies, she advised, then divide up the money, hire both, and compare the results. Then we’d know whom we could trust based on facts, and not just feelings. For a skeptical journalist like myself, it sounded like the perfect plan.

We whittled down the contenders and landed on two finalists who were at opposite ends of the money management spectrum.

One was an East Coast bank with offices in California. We were smitten with their staff ” they seemed whip smart, were the only firm that shared actual numbers of past returns, and they had an outstanding reputation for personalized service.

Our other finalist had virtually no customer service. Relatively new at the time, it was an automated investment service, a so-called robo-adviser with an algorithm to trade funds. Using an online questionnaire we could determine our risk tolerance, but that was as personalized as it got. (This article isn’t about promoting specific businesses, so I’m not naming companies.)

The two companies were also far apart in other ways. The robo-adviser charged an annual fee of 0.25 percent of the value of our investment, and we could put down as little as $2,500. The bank demanded annual fees of more than one percent of a portfolio’s value, and said it only worked with clients with $5 million or more to invest. (We invested substantially less than this, and they worked with us anyway).

Both companies charged their fees, whether we made or lost money.

As the contest took off we enjoyed engaging conversations with our new friends at the bank, who educated us about investing, and their perks included free access to experts. When we had our wills and trust created, for example, the bank’s attorney vetted the documents.

At the robo-adviser, on the other hand, there seemed to be no one who could answer a question. After our trust was created, it took days for us to get an email reply that said there was no way to move our account into the trust.

In about a year it was time for our beauty contest to hit the runway. The folks at the bank pulled out spreadsheets showing us how they outperformed various indexes, none of which we recognized ” and all well below the returns of the Dow or S&P.

The results should not have surprised us. More than 80 percent of actively managed funds fail to perform as well as the market, according to a recent analysis, and it was going to be unlikely that a wealth manager would do better.

The algorithm outperformed the bank by about 50 percent, despite its maddening dearth of customer service.

With the robot’s superior bottom line it would appear the results of our contest were cut and dry, but we were torn. We had a rapport with the bank, we trusted them, and they seemed to understand our needs.

That trust and personal touch was more important than just returns, and we were not alone feeling this way. Research by the Massachusetts Institute of Technology’s AgeLab shows that when working with their financial advisers, investors value personalization over expertise.

Audrey Grubman, president of Grubman Wealth Management of Berkeley, Calif., said assessing a client’s needs is complex. Simple questions about risk often fail to provide genuine insight, since in a boom market people will almost always claim to want risk.

To build her client’s portfolios she uses more open-ended questions like, “What do you want to do in your life?” Ms. Grubman said. “People want to feel like they can talk to someone, and trust someone.”

The bank that offered us those VIP theater tickets wasn’t being frivolous, it was trying to make a personal connection to help establish trust.

When tax time came, however, a new picture emerged. Our accountant showed us how the profits from the robo-adviser had lower tax consequences. The bank’s smaller returns, conversely, were mostly in so-called nonconforming investments, many of them the bank’s own products, and taxes were nearly double, leaving us with a vastly poorer performance than we first realized.

We met with our friends at the bank and asked about that, and the collegial mood abruptly changed.

“What exactly do you think ‘nonconforming’ means?” the portfolio manager asked, as if we could not possibly understand such things.

In that instant all those months of gaining our trust evaporated. Getting personal, it turns out, was a two-way street. The algorithm never schmoozed, but it also never insulted. We fired the bank, moved that money to the robo-adviser, and have been satisfied since.

A personal connection, however, can still win, even with us, depending on the circumstances. Last year for an overseas investment we did a second beauty contest for exchanging money. With a test exchange, two competing companies came up with the exact same performance, to the penny.

But one company assigned us a currency trader in London. He didn’t treat me like a rube as I asked novice questions, and I felt free to call him as the United States election and Brexit rattled the exchanges, pushing the dollar to highs not seen in years.

“This is the day, isn’t it?” I asked. Yes, he said. He got our business, and the timing saved thousands of dollars.

No algorithm could have coached me like that.

Estate Planning Lawyers in Overland Park KS

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The Eastman Law Firm(913) 908-9113
7450 W 130th St Ste. 145
Overland Park

Mon-Sat 8am – 5:30pm

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