Home The Washington Diplomat April 2007 Finding Right Advisor Key To Sound Investment Planning

Finding Right Advisor Key To Sound Investment Planning


Busy professionals have a lot of different ways to manage their money, even if they hardly have any. And in a world of shaky markets—made particularly evident during March’s roller-coaster ride of tumbling stocks—shifty corporate behavior and ever more complex financial instruments, it’s easy to simply retreat into the safe allocations of the 401(k) retirement plan and put off dealing with the future for another year.

But when people finally do seek financial advice, they’ll find it may go beyond retirement accounts and into a comprehensive look at their lives—including death, birth, inheritance, new careers, new homes, college and other family circumstances, or even deeper.

“I find out where people want to go in their lives and then build a plan to get them there,” said Tim Wesling, president of Wesling Financial Planning Services Corp. in Alexandria, Va. “And that plan should really be how do you get there tomorrow, not in 10 years. And you work with people to really overcome the obstacles that they see in front of them. You inspire them. You build a bonfire and get people to move forward, and it’s up to the planner really to keep that bonfire alive.”

Some investors don’t need a bonfire, just some guidance. Some want to be closely involved with the day-to-day management of their assets, while others don’t. And investors’ goals vary, with some not even sure of what they want.

But for all of them, trusting an advisor is key—trusting that he or she is not only competent and ethical, but also understands the individual goals and concerns of the investor.

“Find a manager you feel comfortable with, who understands who you are, what your needs are, that you can talk to, and that you can go to sleep at night knowing that they’ll execute your wishes and have a very high probability of getting you to your ultimate goal,” said Harry O’Mealia, Legg Mason Investment Counsel chief executive officer and president.

Advisors from firms big and small recommend asking around, interviewing several advisors, and finding the right relationship.

“It’s truly about who you trust,” said Keva M. Sturdevant, a Merrill Lynch financial advisor based in the Washington area. “I call it financially undressing in front of me.”

“Find someone with whom you have good chemistry,” added Martin Hopkins, president of M.L. Hopkins and Co. “This is someone who’s going to know more about your financial life than almost anyone else.”

Hopkins used to work for one of the big firms and described the system as inherently conflicted in that big firms profit not just from the fees that clients pay but also from the sale of the very products—stocks, bonds, mutual funds—to which they guide their clients. “Their goal is how much money they can make for the firm,” said Hopkins. “The interest of the client is not their interest. The system makes it so.”

Hopkins is a “fee-only” advisor, meaning that he collects fees only from his clients and does not profit from separate commissions on the sale of specific products. Fee-only advisors claim they not only deliver more objective advice to clients, but also eliminate some fees that big firms pass onto their clients. Relationships with brokerages, including online shops, give independent operators instant access to all the investment options that a big firm offers, but with more personal service, Hopkins argued.

“It’s like McDonald’s,” Hopkins said of the large firms. “You can certainly drop into any McDonald’s, and you know roughly what you’re going to get, even if it’s not the best.”

The National Association of Personal Financial Advisors (NAPFA) is composed solely of fee-only advisors and can refer people to advisors through its Web site (www.napfa.org).

But big-firm advisors counter that they also work very closely with clients—and are able to offer some things that small operators cannot.

Sturdevant of Merrill Lynch said the massive volume of business conducted by big firms means better pricing on financial products, as well as more comprehensive services, noting that many big-firm advisors offer the same intimacy as an independent broker.

Furthermore, advisors there get paid nothing extra for guiding investors to a Merrill Lynch proprietary product as opposed to one openly available. “There is no conflict,” she said.

People come to large firms for several reasons, according to O’Mealia of Legg Mason. “You come for breadth and depth, you may come for stability, you probably come for access to more product, to maybe greater minds, you hope,” he said.

Wesling disputes the notion that the big companies have some kind of inside track. “If that was true, when I was at Morgan Stanley [for four years], it certainly wasn’t communicated to any of the stockbrokers interfacing with the clients.”

O’Mealia calls the fee-only, or open-architecture movement, “a very compelling story,” but one that’s exceptionally difficult to execute and misses the point. Don’t get obsessed with recent track records of performance, he advised. Go instead with attention to fundamentals of companies and investment vehicles.

“A lot of the open-architecture work is rearview mirror-oriented—who has best performance—without getting into what the components, the building blocks of success are,” he explained. “I don’t think a lot of the people in the open-architecture world are getting to the level of understanding that you have to reach to sleep well at night.”

Small firms suggest they specialize in close personal attention, but O’Mealia’s unit, which serves clients who generally have at least a couple of million dollars to manage, is working to combine the personal touch of a small firm with the access to products and analysis of a large firm. “We’re really trying to create a very boutique-y, very intimate experience for the client when he or she is dealing with one of our portfolio managers,” he said.

Once the investor is in the door, regardless what type of advisor they ultimately chose, they may find more to worry about than they anticipated. If they’re coming to an advisor in anticipation of a crisis or life change, such as death, new job or divorce, the element of trust with the advisor can be all the more important.

“I do get people in here who are very emotionally charged, and not necessarily in the most positive way,” said Wesling. “It’s a matter of working with them at their pace.”

Financial advisors are not therapists, however, as the NAPFA Web site makes clear. “A therapist gets at deep-seeded wounds from the past,” said Wesling. “What I can do is make sure that people discover what their goals are, and get them there in the best way financially.”

To do this, Wesling gives new clients a 20-page questionnaire about personal goals and what they find important, as well as what they want to do more and less of. “It’s a matter of uncovering where they want to go,” he said.

Although every portfolio is different, advisors find some common themes among new clients. Many have plenty of life insurance but too little homeowner’s insurance—thanks in part to rising property values over the last several years. Many 401(k) plans aren’t allocated with any strategy, and many people don’t contribute as much to their retirement funds as they should.

Foreign nationals working and investing in the United States face some additional complications. Although many investments work identically for citizens and non-citizens alike, retirement funds and estate planning raise extra issues. For these foreign nationals, most financial advisors consult with accountants or attorneys with expertise in the tax laws of the client’s home nation and the treaties between that nation and the United States.

In particular, estate taxes on non-citizens can be severe, as the million estate tax exemption is enjoyed only by U.S. citizens. Even tougher, Wesling noted, is that nonresident aliens do not get the unlimited tax-free transfer of wealth from a spouse. In other words, when a U.S. citizen married to a nonresident alien dies, the widow or widower could face taxes on the deceased spouse’s assets if they were not jointly owned. “Unless they’ve been well prepared on what to do, it’s going to be a very frightening situation,” said Wesling—all the more reason to invest first in finding the right financial planner.

About the Author

Sanjay Talwani is a contributing writer for The Washington Diplomat.