New book teaches consumers how to select the right adviser.
Don't let the title scare you. “What Your Financial Advisor Isn't Telling You” may be the best tool you can recommend to your current and potential clients in the New Year.
As Sy Syms, the pioneering retailer of discount designer suits, intoned in his radio and television ads for decades: “An educated consumer is our best customer.” What worked for a haberdashery empire that was born in the shadow of Wall Street holds some powerful lessons for financial advisers.
“What Your Financial Advisor Isn't Telling You” (Houghton Mifflin Harcourt, 2016) is not an expose of the financial services industry. Instead, it aims to empower individuals with the information they need to know before selecting a financial professional.
The book is authored by Liz Davidson, founder and chief executive of Financial Finesse Inc., a company that provides financial education programs for employees. A one-time hedge fund CEO, Ms. Davidson was appalled by the major gaps she saw in how high-net-worth investors managed their money. When it came to financial literacy, she realized that average Americans were even worse off.
Despite the hundreds of thousands of financial professionals who are licensed to sell financial products and services, Ms. Davidson discovered that no one firm was dedicated to simply educating people about their options. So she started one in 1999. Financial Finesse is now a leading provider in the growing financial wellness movement, serving more than 2.4 million employees of its more than 600 corporate clients.
Ms. Davidson's book is an extension of her firm's guiding principles: For many American workers, their employer is the best financial services provider. It delivers a paycheck, often provides health insurance and offers tax-advantaged retirement plans. For the majority of Americans, the keys to financial success are to control their spending, reduce their debt, create an emergency fund and save for their future.
“It's time to consider hiring an adviser when you are feeling financially comfortable but want to make sure your savings are invested and protected appropriately so that you can go from being financial comfortable to financially secure and independent,” Ms. Davidson wrote. She offers guidelines for how to find and vet a financial adviser and provides cautionary tales of people who suffered financial consequences because they didn't seek professional advice.
One of the key factors that trigger the need for financial advice is impending retirement.
“A good financial adviser can help you annuitize a portion of your retirement assets, converting some of your nest egg into a monthly stream of income to last the rest of your life,” she wrote. “An adviser can also help with adjusting your investment and distribution strategies as you age to maintain your financial security and with estate planning so that your heirs receive your assets in a tax-efficient way.”
The idea that retirement encourages many to seek financial advice is corroborated by recent research from Hearts & Wallets, a company that explores consumer trends to inspire investment and retirement products among its institutional clients.
“The 47 million boomer households, age 51-70, who represent more than one-third of U.S. consumers and make decisions about $23 trillion, are in the throes of redefining how the stage of life, formerly known as retirement, is lived and funded,” co-author Laura Varas wrote in the firm's latest study, “Funding Life After Work.”
Based on recent focus groups of people in their 50s and 60s with investible assets of $500,000 or more, the Hearts & Wallets report analyzed how older people seek financial help. It found that the human touch is important to these consumers. “Few participants in this age range feel drawn to robo-advisers,” according to the report.
During focus groups that were conducted in November, participants outlined their priorities when seeking financial advice.The top five areas in which they said they need assistance and were willing to pay for it were asset allocation; buy/sell decisions; determining how much and when to withdraw from assets; minimizing taxes; and giving and estate planning.
“Promote and, if needed, strengthen capabilities in the five key areas of need,” the report recommended. “Communicate that all services are not free, even if they don't have an explicit cost,” it added.
Whether through flat fees, a percentage of assets under management or commissions, these services are being paid for because they are valuable and demand a high level of expertise and training, the report said.
Which brings us back to educated consumers. Clients who understand what you do will be better able to value your advice and willing to pay for it. In this era of increasing transparency, you should have nothing to fear if you are doing a good job and are putting your clients' interests first.
Mary Beth Franklin is a certified financial planner.
