Interview with a Financial Adviser: Part Two

Last week we began an interview with Jennifer Ellison, CFA, a principal at San Francisco-based Bingham, Osborne and Scarborough financial advisory firm. Our talk ranged from what an adviser does to what you should expect to what you should look for in a person in such a potentially important role in your financial life.

While doctors might want to search out advisers who specialize in working with physician clients, Ellison said that experience is useful but not essential. Financial planning hinges much more on individual circumstances and preferences than on a broad profession that encompasses wide variations in attitudes and life styles.

Ellison also strongly emphasized the value of finding a fee-based, independent adviser, instead of a commission-based broker. You do not want someone who only makes money if you buy or sell through them and who particularly urges purchase of in-house financial products.

Independent advisers make no money if you buy or sell, and they have you keep custody of all of your investments separately at a company such as Schwab or Fidelity. This way you avoid the potential conflict of interest that can arise when the adviser is not independent of sales.

OK, let's say that you've decided you need an adviser and have found one or more possibilities who have certification, local access, appropriate experience and specialize in your net worth range. You have scheduled an interview with the actual adviser, not some sales-oriented staff member or the charming, central-casting senior member who might then hand you off once won over. There should be no charge for this first meeting, by the way. And you want to prepare by organizing the most pertinent questions to ask. As Ellison added, you should also know the appropriate questions that you would want to hear from your prospective adviser as they, in turn, interview you.

Perhaps the most important issue to keep in mind for both parties is what your mutual expectations are. If you are to have a long and mutually rewarding relationship there will develop a clear understanding of what you both bring to the table.

By all means ask what they do, what their experience is and what, if any, are their special areas of interest and/or expertise. And Ellison says that you should ask directly what the adviser and/or the firm does if they should make a mistake. She says what you should expect to hear is that they would immediately admit it, fix it and make it good. After all, it's only money, which is measurable and fungible, unlike so much of what doctors do.

Ellison says an important "for instance" would be how the adviser and their firm handled the 2008 crisis. We'd all like to think that it won't or can't happen again, but if we have learned anything, it is that in money matters all things cycle. We don't know when or how much, but they cycle, so make sure that you and your adviser have a plan for the next one, "just in case."

Here's an important question for your prospective hire; how are you differentiated from other, similar firms? And by implication, how can this particularly serve your needs?

Ask who their typical client is. And ask for several names that you can call for a reference. And you might call the last one on the list first, not the first on the list. We all have the occasional wart, but the most voluble client they list first might gloss over it/them more than the last one listed.

Both parties want to establish what the "all in" fee schedule will be, as Ellison wisely puts it. This is a situation for clarity and most of us do not want to be nickel and dimed with surprise fees from unbundling as is growing in related industries such as banking. There are many variations of fee schedules, but as a general rule, 1% annually for assets under management is a place to start, with the percentage sometimes declining as the amount goes above some level such as $1 million. And, importantly, these fees are generally tax deductible, no small matter. Check with your CPA.

Some caveats apply. I would be very leery of anyone who promises a return above the market average. That's how the Madoffs of the world thrive. As I pointed out above, that's not where the real value comes from retaining a financial adviser.

Also, eventual, complete openness about assets, liabilities, lifestyle, goals, etc., is a must if the adviser is to be most useful in helping you achieve success. I know we are all goosey about disclosing such things, and that's why establishing a trusting relationship is so important. And in so doing it really helps if you end up liking each other. Just keep in mind that it is necessary but not sufficient alone to like each other. As I have written before, in business affairs, you must periodically review performance of all your team; adviser, CPA, lawyer, insurance agent, etc., friend or not.

But enough negative thoughts. This on-going exercise is all about optimism and assessing what we have and finding the best way to use our assets to achieve our goals. And the average doctor (oh, you say that you are not average?) does not have the training (my mantra), the time or, come to admit it, the interest to do all of one's planning alone. And you would also have to keep up with all of the changes in the complex financial scene and maintain your financial calendar all while being objective.

A wry, remembered phrase comes to mind; "A doctor who treats himself has a fool for a patient." Something like that in personal financial affairs works for me too.