PREMIER Business & Finance: What Makes A Good Financial Advisor?

April 2012  Most people who entrust their financial assets to financial advisors are looking at the wrong bogey for determining whether a financial advisor is right for them. 

He wanted to know if, based on my advice, my portfolios had beaten the Dow Jones Industrial Average or the Standard & Poor 500 average over the last 1, 3 and 5 years. He was also asking me about the beta (volatility) of the portfolio, the alpha (risk adjusted growth), and R-Squared (movement of the securities that can be explained by movement in the benchmark index such as the S&P 500).

He was obviously well versed on stocks and the statistical measurements that accompany them, but I finally had to stop him and ask him why these things were so important?

His answer gave me pause. He said, “How would I know whether you are the right financial advisor for me if I don’t know these things?”

After a long pause, I realized that most people who entrust their financial assets to financial advisors are looking at the wrong bogey for determining whether a financial advisor is right for them. Although I believe all of those things he mentioned are important for an individual investment, it seems that too many of us are looking at our finances from a microscopic viewpoint and miss the big picture.

So I asked him if he would measure a baseball organization by knowing if one pitcher on the team gave up just 2 runs per game, struck out 10 batters and walked only 2 per every nine innings pitched and had a fastball that was clocked at 98 mph?

He looked at me quizzically and said no, I would need to know more about the other players on the team. I said, “And you would probably want to know more about the manager, coaches, the team’s farm system, the team’s philosophy (think Moneyball) etc.” The same is true in finding a financial advisor.

A good financial advisor will help the client with an assessment of where they are and where they want to be. They need to evaluate whether or not they need a trust. Is insurance necessary to protect an estate from taxation? What about succession plans? Many people are divorced and that can present special issues. There are many today who are divorced and remarried with kids from the first and the second marriage and have no succession plan. There are those who have not addressed the issue of future medical care and medical decisions that should be made ahead of time. What about caring for elderly parents?

I could go on and on, but a good financial advisor will put all those issues on the table and be the quarterback of the process. On behalf of the client, the advisor should be working with a good estate attorney and a good accountant so as a team they can address the issues. The next step is to have a solid financial plan in place with all components (stocks, bonds, real estate, cash etc.) being discussed.

A good financial planner is much more than a stock broker.

By Steven R. Wolff, Managing Partner at Wolff, Wiese, Magana

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Wolff Wiese Magana is an Investment Adviser registered with the SEC.  Advisory services are only offered to clients or prospective clients where Wolff Wiese Magana and its representatives are properly licensed or exempt from licensure.  This editorial is solely for informational purposes.  No advice may be rendered unless a client service agreement is in place.


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