The Economy

The Best Advice

Choosing a financial adviser may be the biggest investment decision you make.
Chuck JaffeMarch 15, 2006

You wouldn’t hire the next guy who walks in your office and can talk business to be your company treasurer. If you did, you might wind up with a delivery boy instead of an executive.

Likewise, you almost certainly didn’t get your job without competition, a rigorous screening process, and probing interviews. After all, the future of your company’s finances were at stake.

So why would you use lower standards when hiring a financial adviser for you and your family? Choosing an adviser may be the biggest investment decision most people make — and CFOs are no exception, no matter how sophisticated they may be about corporate finance. An adviser affects a lifetime of choices across the entire spectrum of personal finance. Ideally, the hiring process for a planner should be almost as rigorous as the one you went through to get your job.

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Unfortunately, most people who hire advisers — whether couples earning a median income or top-level executives with millions in assets — interview just one candidate. They take little time to check his abilities and credentials. Indeed, they may hire someone via a casual referral, or a chance meeting at a cocktail party.

That, of course, is a recipe for disaster. High-ranking executives must be particularly careful in the hiring process — not because they are rich, but because they may be subject to standards that don’t pertain to the common investor. For example, an executive who has incentive stock options is not the usual client for the average financial planner. Typically, an adviser might suggest exercising options in January so they can be disqualified in December, but a CFO may not be allowed to disqualify the options.

Even basic diversification can be a problem. High-ranking corporate executives may have a high percentage of their net worth tied up in company stock, and traditional financial-planning tools and formulas don’t always work in this situation. It’s critical, therefore, that a potential adviser have experience with clients in similar financial circumstances. You don’t want to be the guinea pig for an ambitious adviser hoping to someday have a better class of clientele.

How can you find a qualified, trustworthy financial adviser who will provide mistake-free service? Here’s a checklist to get you started.

Ask around for references — but be skeptical. The best way to search for candidates is to request references from people you know and whose needs are similar to yours. Don’t be too trusting, though: their selection process may not have been rigorous, and they may have chosen the first adviser they interviewed.

To find adviser candidates who will be free of the bias of your friends, try contacting the following agencies:

The Financial Planning Association offers referrals to advisers in your area. Use the “public” area at

The Certified Financial Planner Board of Standards can provide a list of advisers in your area who have earned its credential, one that indicates that an adviser has an outstanding overall grounding in financial issues. Use the search function at

The National Association of Personal Financial Advisors is a group for fee-only planners. Members typically hold other credentials, but they can belong to NAPFA only if they accept compensation strictly on a fee basis (typically charging a small percentage of assets under management). To find a fee-only planner, check out

Certified public accountant-personal financial specialist candidates combine an accounting background with extensive personal financial training. That tax background often makes them ideal candidates for high-net-worth customers. You can find a CPA-PFS in your area by using the search function at

Ask plenty of questions. An adviser who wants to work with you should answer every question you have, and in advance. After all, you’re looking for someone who can be your family’s top financial officer until either you die or the adviser retires; a 25-minute interview is almost certain to be insufficient. Don’t be afraid to ask anything that comes to mind — from how the adviser is compensated to the types of products sold (or avoided) to how investment decisions are made and justified, and much more. You can obtain a list of interview questions from the Financial Planning Association ( or the National Association of Personal Financial Advisers (

Do a background check. Almost every fraud you hear about involving a financial adviser could have been avoided simply by contacting federal or state securities regulators to see if there were past problems. You should question any candidate about black marks on his record, and avoid any adviser who has been the subject of complaints that can’t be adequately explained.

To do a background check, start with your state securities regulator. You can get contact information from the North American Securities Administrators Association at If you are dealing with a stockbroker, use the free NASD BrokerCheck service at If your adviser sells both securities and insurance, find out if he has ever had complaints filed against him with your state’s insurance commissioner; contact information can be found at the site of the National Association of Insurance Commissioners,

Stay in control. Be clear to candidates that you’re not going to surrender control of the relationship. At work, your boss relies on you, but also works with you. Never hesitate to let a planner go if the relationship turns out to be less satisfying than you expected. At the same time, you have to give an adviser leeway to do his job — otherwise, why hire an adviser in the first place (see “How to Be a Client” at the end of this article)?

“Executives need to size up their personal abilities to be both CEO and CFO of their investment life,” says Lisette Smith, principal of Smith Rapacz LLC, a financial advisory firm in Boston. “Some people can do both, but most can’t. Instead, they can be a great boss for the financial planner they hire, and they can come away feeling a lot better for it.”

Chuck Jaffe is senior columnist for MarketWatch and the author of The Right Way to Hire Financial Help (MIT Press).

How to Be a Client

Ross Levin was excited to take the meeting. It was a few years ago, at the height of the bull market, and Levin — widely recognized as one of the nation’s top financial advisers — had the CFO of a Fortune 500 company seeking his services.

“You’re excited to get a call like that,” says Levin, of Accredited Investors Inc., in Minneapolis. “You know you will be dealing with a wealthy client who is an educated consumer, one who knows money and finances…. That’s the kind of person who typically can build up trust in an adviser quickly, because they are hiring you to help them do a very specific job.”

But instead of love at first sight and a lifetime financial partnership, Levin says the meeting was “like a blind date gone horribly wrong.” The CFO’s portfolio “was a mess,” recalls Levin. He surely knew corporate finance, but he had no clue about financial planning. Yet he had no intention of giving up any control when it came to selecting and managing assets. He was, says Levin, the proverbial “nightmare client,” and in the end, it was “obvious to both of us” that he wasn’t going to hire an adviser.

As this story suggests, a CFO can be a financial adviser’s worst client. But it doesn’t have to be that way. “If they delegate the responsibilities and allow us to come up with a plan we can work on together, then a CFO can be a great client,” says Lisette Smith of Smith Rapacz, a financial advisory firm in Boston. “If they allow you to be an extension of what they are thinking and let you come up with a plan and implement it, the results can be terrific.”

Indeed, Levin notes that around the same time he had the awful interview with the Fortune 500 client, he met with another CFO of a public company — with completely different results. That executive was a perfectionist at work, and found himself frustrated with managing his own finances because he didn’t feel quite as successful. “He found that his knowledge of all of this stuff paralyzed him, that he couldn’t run his finances to the same kind of standards he set for the business,” says Levin. “Now he can do that, because he delegated key responsibilities.” — C.J.

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