Was Mark McGwire the best baseball player in 1998, or was it Sammy Sosa? Or was it someone else? No, this column is not about baseball, it’s about judgment.
Whether you’re picking the best baseball player, the best financial adviser or the winner of the Miss America pageant, beauty is in the eye of the beholder.
That’s why Worth magazine’s recent annual effort to single out the financial advisers it considers to be “the best” in the country always makes me ill. You simply can’t pick “the best advisers” for an entire nation by looking entirely at registration forms, credentials and a sample financial plan.
The Worth list, which which was recently diluted from the top 60 advisers to 300, includes some fabulous advisers, but also a few marketing blowhards. Most want to maximize wealth for their clients, but there are a few who, I am convinced, are only interested in maximizing their own wealth.
“I don’t honestly believe anyone can come up with the list of the best planners, even if they knew what it meant, or supposedly what it took to create such a list,” says Diahann W. Lassus, of Lassus Wherley & Associates in Providence, N.J., who, nonetheless, appears on Worth magazine’s list. “The problem is that you say these are the best and everyone says, `That’ll be good enough for me.’ But no adviser is right for everyone, and picking a planner on the basis of a list is silly.”
One of my favorite examples of why you can’t pick “the best planners” involves an adviser from Worth’s list, someone whom I trust enough to have quoted in this column.
Two colleagues, looking separately for financial help, approached me after completing three initial interviews with planners. Both had met this particular adviser. The first co-worker thought this guy was too pushy, too sales-oriented, too full of himself, too much about insurance and “not enough about me and my wife.”
The second co-worker hired him. “We definitely had the best connection there,” she said.
One adviser, two completely opposite reactions. And both co-workers went away happy with their decisions.
It’s that last part that’s most important.
Trying to find a financial adviser is very much like trying to sort out your feelings about baseball’s MVP. You have some numbers to go on, some background and statistics to sort through, and some factors you consider very important.
But the result is not the best player; it’s your favorite player.
And that is as it should be. Finding the right adviser is an exercise in determining which one of several candidates you would trust and enjoy working with the most.
Your personal list of priorities will determine how much weight you give experience, the scope of the adviser’s practice, attitudes about money and investing, and personality.
Says Myra Salzer of The Wealth Conservancy in Denver, also on the Worth list: “Where the Worth list or any referral service becomes a problem is when people rely on that recommendation and rely on someone else’s leg work to make what is a very personal decision.”
Much as I hate Worth’s list, its execution still provides a general framework for choosing an adviser. That said, skip the list and focus on interviewing several candidates and asking enough questions to get a feeling for which one is the best match for you.
Here are key points to remember as you find an adviser who makes your own personal “best list.”
– Performance is measured in achieving goals, not raw returns. The average financial planner really has no way to show you, statistically, how he stacks up against the competition. It’s not like buying a mutual fund and comparing it with peers.
But the one thing that all of his clients have in common is the desire to reach goals. Be sure to get references from an adviser and ask those clients whether the planner has them on the right track. Financial planning is not like buying a lottery ticket; the goal is not to strike it rich but to manage your way to a comfortable future.
– A background check is essential. Financial advisers know you can check on their disciplinary history at the state regulatory office. They also know that lawsuits are a matter of public record.
As a result, they should tell you about any of those blemishes in their past.
That said, you should check with the regulatory agencies anyway. You can never be too careful.
– There is a big difference between talking with you and talking at you. Some advisers sound smart, but talk over your head. If you don’t understand what a planner is saying well enough to explain it to, say, your parents and your children, you have not yet met the best adviser.
– A sample plan tells you a lot about what you are paying for. A good adviser will show you the kind of work you will get for your money. But sample plans run the gamut from simple to overburdened by charts and graphs.
You want a plan that you can read and understand, that is done in a tenor you agree with. Some advisers steer clients very strongly; others are almost spineless when it comes to making recommendations.
Since the plan is what you get for your money, be sure you like what you see in the sample, both in style and substance.
– No honest adviser hides his fee structure. All advisers should tell you upfront exactly how they are compensated, in real dollar terms. Anyone who tries to hide what he is getting or just buries it under the jargon of investing does not deserve your trust.
Find out how and how much an adviser will get paid before you even consider paying him a cent.
– Experience is the best teacher. The “best planner” for you will be someone who works with people in similar situations. One problem with the Worth list is that most of the advisers take only what the industry calls “high net-worth clients.”
You want an adviser who is comfortable with your situation, first in terms of the financial situations you face and then as a matter of being happy to have you as a customer.
– Continuing education is at least as important as credentials. One alarming school of thought these days holds that credentials are unimportant, because the adviser’s real job is to give you a warm, fuzzy feeling that helps you when the market heads south.
Truth be told, good advisers have more than a soothing personality. They need appropriate training.
But credentials themselves are not the be-all, end-all. Look instead at what is behind every professional designation, what it takes to earn it and keep it. Most of these marks require some type of continuing education; find out which classes the adviser takes and see how they fit with your needs. Some of these classes are more about squeezing money out of clients than about making money for them.
– You are buying trust and confidence. An adviser can have a wall full of credentials, a legion of satisfied customers, a file stuffed with press clippings and a winning smile, but that doesn’t guarantee that you trust him with your money.
After you have looked at all of the tangible elements–sample plans, background, etc.–your selection will boil down to whom you believe in the most.
SOME HELP FOR CHOOSING A FINANCIAL ADVISER
Here are industry groups that offer help in finding qualified planners:
– The Institute of Certified Financial Planners will give you a list of up to three planners in your area, along with a brochure to help guide you through the selection process. All planners whose names are provided will have achieved the CFP credential. Call 800-282-7526 for information (hearing impaired call 800-438-9968).
– The International Association for Financial Planning gives a longer list of area planners, along with a “Consumer Guide to Comprehensive Financial Planning” and other informational materials. To be in this referral program, a planner must have a financial planning designation (CFA, CFP, ChFC or CPA), a law or financial planning degree or must have passed the Practice Knowledge Exam. Call 800-945-IAFP.
– The National Association of Personal Financial Advisors, whose members must be fee-only planners, will give you a list of members from around the state, along with a financial planner interview form and a disclosure form to help you illustrate how and how much the planner and planning firm will be paid if you sign on. Call 888-FEE-ONLY.
– The American Institute of Certified Public Accountants provides the names of members who have earned its Personal Financial Specialist (PFS) designation. The PFS is for accountants who have several years of financial planning experience, maintained a continuing education schedule and passed a rigorous exam. Call 800-862-4272 to ask for CPA/PFS referrals in your area.
