YOUR RELATIONSHIP WITH YOUR FINANCIAL ADVISOR
Ellie Wotherspoon '77
Vice President, Private Client Group
First Union Securities

In the go-go years of the technology boom, many people decided it was easy to manage their own money. Just buy growth stocks, including some big tech names, and you couldn't lose—or so people thought. Discount brokers and online trading were the way to go. As we were all reminded in 2000, however, investing carries significant risks. I believe the experience of the last year in the stock market will prove to be a great lesson for us all. It has already brought us back to our senses when it comes to investing wisely for the long term. It has also made many people realize they would rather work with a financial advisor than try to go it alone.

If you do not already have a financial advisor, how can you find one? What qualities should you look for as you interview prospective advisors? What should you expect from the relationship? Will a financial advisor be willing to work with you? Do you know how to be a good client? Below are some points to consider as you start to care properly for the money you are working so hard to earn.

Finding a Financial Advisor. The best way to find an advisor is by referral from a friend, relative, or colleague. It is similar to finding a good doctor. You need an advisor with whom you can work and share confidential information for many years. Gather several names and interview candidates until you find someone with whom you can be completely comfortable.

Understanding your Options. In the confusing world of financial services, you need to understand the difference between financial advisors employed by securities firms, independent certified financial planners (CFPs), and private money managers. It is important that you ask prospective advisors what kind of experience they have, what services they offer, and how they charge for their services.

Financial advisors at brokerage firms are licensed by the NASD and are typically trained by their firms. They usually have the flexibility to charge you either a commission on investment transactions or a percentage fee based on the size of your account.

CFPs typically are self-trained and certified by the Certified Financial Planner Board of Standards. A CFP is likely to charge you an hourly fee for consultations and perhaps a stated fee for a financial plan or other work product. You still would have transaction costs or fees associated with actual investments recommended by the CFP.

Private money managers, also licensed by the NASD, generally specialize in certain types of investment styles and manage large portfolios on a discretionary basis for a percentage fee based on the size of your account.

Financial advisors and CFPs may also have state life and health insurance licenses required for them to advise you on annuities, life insurance, and long-term care insurance. All of these professionals are subject to strict continuing education requirements to make sure their advice is current.

Client-Advisor Relationship. The ideal client-advisor relationship is grounded in mutual respect and trust. I cannot stress this enough. The relationship is a two-way street, and each party needs to feel positively about the other.

Qualities of a Good Financial Advisor.You are looking for an advisor who:

• Has breadth of knowledge and experience. Your advisor should have experience in a wide variety of areas affecting your own and your family's financial security. First, you are seeking ongoing investment advice relating to allocation of your assets among stocks, bonds, and cash, including perhaps mutual funds or annuities. Just as important, you need an advisor who can help you set and reach specific goals for retirement. Your advisor should be able to handle your year-end charitable gifts of stock, to guide you through the maze of IRAs, Roth IRAs, 401(k) distributions, or rollovers, and to help you execute—on the advice of a lawyer or CPA—tax planning, estate planning, life insurance planning, and even the possible purchase of long-term care insurance. Your situation may also require experience in stock options, the sale of a business, or divorce settlements. Significant charitable gifts, including planned gifts such as a charitable remainder trust, may be an important piece of your overall strategy, and it is extremely important to have expert advice for these transactions.
• Takes time to work with you. You are not looking for cookie cutter pie charts bound in a pretty folder. You want an advisor who will listen to your concerns, ask questions of you, explain difficult concepts to you clearly, and encourage you to ask questions. Your advisor should be willing to meet with you at least twice a year.
• Is honest with you. You do not want a financial advisor who promises you the moon. It is extremely important to find someone who keeps your own expectations realistic so you will not be disappointed down the road.
• Can refer you to other professionals. Look for an advisor who can recommend good CPAs and estate planning lawyers. You must be the person to choose your own CPA and lawyer, but referrals from a trusted advisor can help you identify good candidates. A CPA should always be your primary source of tax advice, and this person should also prepare your tax returns each year. Be aware that your financial advisor is not licensed to give tax advice. Similarly, you need a lawyer to advise you on all estate planning questions, including charitable gift planning. All documents relating to your estate plan must be drafted by a lawyer. Particularly with recent changes in the law, estate planning is a complex undertaking, and it is essential to have the advice of an expert.

How to be a Good Client. A good client knows how important it is to:

• Trust and listen to your advisor. A good financial advisor brings years of experience and knowledge to the table. For the relationship to work well, you need to trust the advisor's recommendations. It is important for you to ask questions and understand the advice you are receiving. But it is also important that you not try to second-guess the advisor every step of the way.
• Maintain realistic expectations. Recently, many investors have lost sight of the average performance they can expect over the long term. In the world of investing, slow and steady usually wins the race. Your best friend is time. Matching your investment objectives with your risk tolerance is also essential.
• Answer calls and complete paperwork promptly. This may seem obvious, but many clients do not follow these basic courtesies. Your attentiveness to these details will go a long way toward making sure your advisor provides you with consistently good service.
• Be willing to pay for good service. If you want a consistently high level of service, you must be willing to pay for it. In the long run, you will be much happier if you let your advisor know you place a value on the relationship and wish to compensate her fairly for her services. In turn, your advisor should be willing to explain how she is compensated and to make an effort to work out a fair arrangement for managing your accounts.

If you follow these basic steps, you will be rewarded with a financial advisor who works with you for many years, takes a personal interest in your finances, and guides you and your family toward financial security down the road.

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