NYT on what (and what not) to Expect From A Financial Advisor

The nyt published a special section on personal wealth today. It includes an excellent article on what investors should reasonably expect (not expect) from a financial advisor. I have highlighted a couple of the points although the full article is worth reading. In fact I think the comments are so reasonable I plan on showing the article to all my clients and prospects.



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February 26, 2009
Your Money
Rules for the New Reality
By RON LIEBER

BACK in September, before we were all inured to the tottering nature of so many financial giants, investors were looking for someone to blame.

So when Prince & Associates, a market research firm in Redding, Conn., polled people with more than $1 million in investable assets, it wasn’t any great surprise that 81 percent intended to take money out of the hands of their financial advisers. Nearly half planned to tell peers to avoid them, while 86 percent were going to recommend steering clear of their firms.
In January, Prince took another poll of people with similar assets, and only a percentage in the teens had engaged in trash-talking. Just under half of the investors had taken money away from their advisers

All of the bad feelings, however, raised a simple question that’s even more essential when we’ve all been so severely tested. What, exactly, does your wealth manager owe you? And what can you never reasonably expect?

Some of the answers are basic. Your financial advisers should have impeccable credentials. They should be free of black marks on their regulatory or disciplinary records. They should agree, on Day 1, to act solely in your best interest, not theirs or those of any company that might toss them a commission.But other standards are less obvious, and the carnage in the markets provides an excellent opportunity to review them.

WHAT YOU SHOULD EXPECT


A LONG LOOK AT RISK

Most of us aren’t honest with ourselves about how much investment risk we can handle. Even worse, we tend to change our minds at market tops and bottoms, making the wrong choices at precisely the wrong moments.

An accurate assessment of risk is important.....

B


A BALANCE SHEET AUDIT....

CUSTOMIZATION.....


TO EAT THE SAME DOG FOOD.....




WHAT YOU SHOULD NOT EXPECT

MARKET TIMING.....



LOW RISK, HIGH RETURN

TO BE A PEST....

Remember that you hire advisers in order to set some clear, long-term goals — which probably shouldn’t change every day in reaction to the ups and downs of the markets.

“One of my biggest roles is to take the emotion out and be a calming force,” said Lon Jefferies of Net Worth Advisory Group in Midvale, Utah. “If clients want to continually change their risk tolerance when the market drops another 300 points, that’s going to make it impossible for the relationship to succeed, because they’re changing the rules almost every day.”

Rather than calling every day to second-guess yourself and your adviser, set aside dates to sit down and examine your feelings.


CERTAINTY

This one may be the toughest to swallow. Jay Hutchins, of Comprehensive Planning Associates in Lebanon, N.H., never promises an outcome. The past year, he said, should make it easier for new clients to understand why......

.

Life, in general, is unpredictable.

And for the adviser, that uncertainty should be cause for some modesty.

Milo M. Benningfield, of Benningfield Financial Advisors in San Francisco, notes that we tend to value aggressiveness. “But when I think about the meltdown, I feel like it was overconfidence,” he said. “It was a colossal lack of modesty that led people to underestimate the risk involved and believe that they understood things more than they did.”

So to him, a big part of being modest is recognizing your own limits. “You’re more inclined to say, What if I’m wrong?” he said, adding that he often reaches out for help on insurance and estate planning matters. “I think the definition of incompetence is failing to recognize that you don’t know something.”

I must say I quite admire the above cited Mr. Benningfield for his honesty. Having worked in finance for quite a long time, I can assure you it is uncommonly refreshing.