Recently, I stepped in to help a relative choose a financial advisor. This relative is in his early 70s, and recently retired. He's not super rich, but having sold off a medical business, let's just say he retired with “a few.”
A resident of a small, Midwestern city, my relation would send me a handful of names to interview on his behalf — a bank-based asset manager, an independent registered rep and an RIA. Sorry, big wirehouse types: You weren't on the list, because my relative was closing his account at one of the biggest firms. (“I can't figure out the account statements, which are as long as a book,” my cranky relative says. “It doesn't look like I made any money over the last few years. How is that possible?”)
In talking with him about his goals and his retirement plan, well, let's just say I know what it must be like to have to reason with smart, but risk-adverse clients who have earned some respect and made some money in the medical biz, but simply want it all: low risk and nice returns but fear bear markets.
Here is the lesson for you: Keep it simple, provide the details the prospect wants (i.e. some sophisticated investors don't want sales literature, but MPT and portfolio performance analytics) and, most of all, be clear about the total charge to the client, including your advisory fee, asset management fees and any other charges. The client wants one neat figure — no surprises later.
Not content with the options my relation sent me, I reached out to four or five more financial advisors from around the country. Most advisors I interviewed were very professional; some seemed talented. One IAR made a tactical error: He sent cheap-looking, not-very-detailed sales pamphlets, advertising asset management for a 2 percent management fee (slight break points, of course). Way too much.
An indie rep with a reputable b/d came across as an asset gatherer none too interested in detail, I would later learn. While he sent a comprehensive template of potential asset allocation and manager selections (generated by the b/d's research desk at some not-so-recent time), one of the choices was a bond manager who had 20 percent exposure to mortgage-backed securities. When I asked him how the manager was doing now — did he have subprime lenders? — he emailed me back saying he had made a mistake, here is the correct bond manager. And no mortgage-backs, see!
In the end, my relative was so put off by the whole process (especially the fees, which he couldn't figure out), he decided to deposit his money in various CDs and live off the income — at least for now. He simply got tired of sales pitches.
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