By Nicholas W. Stuller
Sophia (not her real name) is in her forties, divorced, and has two girls both in their twenties. She is a unique investor because for over fifteen years she has worked at a consulting firm that serves all types of financial advisory firms, from the Wall Street giants to small advisory firms. She is a more knowledgeable investor than most.
Sophia takes a pragmatic approach to her wealth management. Now that her children’s college needs are satisfied, her primary goal is securing her retirement. She regularly entertains proposals from other advisors to compare and contrast what others recommend to her current plan. She uses the same advisor that she chose for her and her ex-husband years ago. The advisor was referred to her by their accountant, and she was smart to ask if the CPA received any compensation from the advisor for referrals. He did not; he simply likes to refer to this particular advisor. For those that do, this practice is legal, and called a solicitor’s agreement, and the fees must be fully disclosed to the client. This practice is not a bad practice per se, but for Sophia, she preferred to take no risks at all for this type of conflict, so she hired the advisor and uses him to this day. He has delivered acceptable performance, been responsive and communicative.
In searching for and working with an advisor, Sophia has very direct advice for anyone, but especially for women:
“If they are in any way condescending, or patronizing, simply walk away. Your advisor must be willing to answer any and all questions, freely give you all costs involved so you know exactly what you are paying. It is your money, and you should treat this service like any major buying decisions such as a house, or car. Do a ton of research and be prepared. Know yourself and your needs, preferably prior to meeting with an advisor. Be comfortable to put your potential advisor on the spot by asking hard questions. If he or she has a tough time answering these hard questions, do not hire them.”
A terrific lesson for all comes from an experience Sophia recently had. She received a phone call from an advisor affiliated with her bank requesting a meeting to review her retirement investments. She agreed, and after a meeting, he began to write up a proposal. While she was waiting for his proposal, Sophia looked up this advisor’s background on https://brokercheck.finra.org/, run by FINRA, the regulator that provides free access to advisors’ backgrounds. Sophia learned that this advisor was only employed part-time at the bank; the other half of his work week was spent working at a restaurant. Sophia shared with me that so few investors actually look up their advisor. While a very small percentage of advisors are part-time, one certainly does not want to be in the position of being surprised to learn of an advisor’s background that makes you uncomfortable after it is too late.
Sophia did not switch to him for a number of reasons, including his youth and part-time status, but mostly due to his aggressive manner and having overly ambitious projections for her portfolio.
This story first appeared in my book THE TRUTH SHALL SET YOUR WALLET FREE: Secrets to Finding the Perfect Financial Advisor, published in 2018 by Post Hill Press.
Nicholas W. Stuller is the Founder and CEO of MyPerfectFinancialAdvisor the premier matchmaker between investors and advisors using personalized data, proprietary algorithms, and deep industry experience.