It is way down the list of websites maintained by state government where one would think to search out words of wisdom from the likes of Mark Twain, William Shakespeare and Ralph Waldo Emerson. But there the luminaries appear, courtesy of the Connecticut Department of Banking, with a Russian scientist quoted as well with perhaps the best advice for the purposes of this humble treatise: “Learn, compare, collect the facts.”
It’s good advice from Ivan Pavlov for most any endeavor, including the process of selecting a financial adviser to help you along to better financial health. And let’s be clear — many of us need that help, whether in staying on track for retirement or, if secure on that front, vetting any emerging investment options for appeal and relevance. On a Financial Industry Regulatory Authority quiz of investor knowledge about the basics, FINRA determined that two-thirds of those responding got at least half the questions wrong.
As Pavlov put it so succinctly, learn. But when it comes to picking an adviser, keep a quote top of mind as well from Twain (who struggled mightily himself with keeping his finances in order): “Training is everything. The peach was once a bitter almond; cauliflower is nothing but cabbage with a college education.”
Whether you choose an adviser on the renown of the company or pick one on the advice of a friend — or hire a friend who is a financial adviser — those choices do not always work out.
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In a study several years ago, the PriceMetrix arm of McKinsey & Co. estimated that financial advisers churn about 10 percent of their client base in any given year — that’s more than the clip at which cable companies have been losing customers in the cord-cutting era.
The most critical stage for the adviser-client relationship is the first four years, according to PriceMetrix, as customers assess performance, communication, and other key elements of the relationship such as fees — including any of the surprise variety (fee schedules were a major element of a “secrets of success” roundtable hosted last November in Stamford by the Fairfield County chapter of the Financial Planners Association of Connecticut).
The financial performance of one’s portfolio against broader indexes is only part of what you should be reviewing with any financial adviser — whether they hold tenure with you or are otherwise newly engaged — with planners potentially influencing tax decisions, savings for major outlays like home expenses, college and future health care costs, to name a few.
Brian Andrus, managing partner of Wellspring Financial in Guilford and previously director of the Certified Financial Planner program at Quinnipiac University, notes financial planners often see the world through “keyholes” that are framed from prior career tracks or interests, be it equity or fixed-income investments, tax and estate planning or insurance.
“Advisers are not immune to having conscious or subconscious biases based on the discipline they practice,” Andrus says. “A good way to start is from the perspective of interviewing the adviser and look for someone that has both a broad working knowledge of each discipline as well as deep area of expertise in at least one. Ask well-thought-out questions related to their process. With an ever-increasing culture of readily available information a click away, the process by which one measures, weighs and coordinates financial decisions really is the critical function.”
Connecticut has a big field of potential advisers to sift through with FINRA listing more than 13,000 brokers and investment advisers spread out among more than 1,500 firms. If you prefer to start your research online rather than through friends and family, there are too many sources to list, from Forbes (which named Jeff Erdmann in the Greenwich office of Merrill Private Wealth Management the top adviser in the nation last year), to these pages via Connecticut Magazine’s annual partnership producing the Five Star Wealth Manager Awards (published in December), with Andrus in that number.
After you settle on a few finalists, do a check-up on the FINRA’s BrokerCheck tool at brokercheck.finra.org on whether they have any history of sanctions or complaints on file with the Securities & Exchange Commission or state regulators such as the Department of Banking.
There may be fewer advisers to choose from in the coming years. In its annual survey last year of financial advisers nationally, J.D. Power determined that one in five are at retirement age, with too few newcomers entering the field. It amounts to a “generational crisis” in the words of J.D. Power, with just 11 percent of advisers today younger than 40. Between 2015 and 2018, FINRA catalogued four straight years of declines in the number of professionals under its jurisdiction.
Still, FINRA records suggest Connecticut averages about 400 brokers and advisers entering the industry annually, give or take 50 in any given year and with no discernible drop-off in the current economic expansion.
As for advice for any Nutmeg State newcomers to the field of financial planning looking to make a career of it? Let the transcendent words of Emerson guide you in the years ahead — hopefully fruitful ones for your future clients, and by extension, you: “Nothing astonishes men so much as common sense and plain dealing.”
Planning a Q&A
At letsmakeaplan.org, the Certified Financial Planner Board of Standards suggests several questions to ask investment advisers in advance of hiring them to steer your portfolio — and criteria to vet them over the years, to include their objectivity, integrity and clarity in communicating changes to strategy or fee policies. But first things first — what information should you seek before retaining an adviser?
Experience: How many years have they been at it, and do they have previous work experience that influences their investment philosophy today?
Qualifications: What credentials do they hold and are they up to date? From what sources do they fulfill their continuing education requirements?
Services: What planning and transaction services do they offer, and what required registrations do they hold with state agencies or other authorities?
Philosophy: To what degree do they tailor their investment strategies to individual clients? What drives their philosophy in being attuned for strategic changes?
Profile: Is their practice focused on any specific niche, whether by assets or other client demographic characteristics?
Costs: How does the financial planner make money, and has that changed over time? How are changes to fees and commissions communicated?
Conflicts: What financial ties do they have to other entities or individuals, whether mutual funds, broker-dealers, insurance carriers or others?
Team: Will they assign others to oversee your portfolio and strategy? If so, ask to meet any key individuals and check their backgrounds.
Compliance: Have they ever been disciplined by any government or industry authority? How do they ensure compliance by their staff?