In Search of Good Advice
What does it take to find an adviser who's a match for you? The Anderson family finds out.
By Jeffrey R. Kosnett, Senior Editor
From Kiplinger's Personal Finance magazine, June 2006
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Anxiety is rare for Greg Anderson, a hard-driving man who grew up "eating a lot of squirrel," went to West Point, earned an MBA and became a globe-trotting management consultant. He's motivated and organized. When he appealed his property assessment, Greg researched 30 comparable homes in his Atlanta neighborhood and developed color-coded spreadsheets to take to the tax hearing. "I'm a bullet-point guy," says Greg. He won the appeal and saved $1,000 on his taxes.
But last year Greg realized what his wife, Michelle, a lawyer, had known all along -- they weren't investing their money so diligently. Put bluntly, Greg and Michelle were barely investing at all. They'd amassed $200,000 in a checking account and held much of the rest of their $650,000 total savings in money-market funds and other fixed-rate investments. Despite their putting away $50,000 a year toward a goal of retiring in 20 years with $5 million, the Andersons were adrift.
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It's not that Greg, 40, and Michelle, 33, parents of 2-year-old Mary Claire, are timid about money. Job demands (Michelle works four days a week at a law firm) and other aspects of daily life just consume their mental energy.
So last year Greg and Michelle decided to find a financial adviser and start a real investment plan. But neither had a clue where to find help. They ruled out the office grapevine and asking friends and neighbors -- tried-and-true ways of getting leads. They accepted the prospect of paying thousands in annual fees because, as Greg explained, a pro could redeploy their savings to achieve market-beating returns. Michelle also wanted "a personal trainer, a coach, someone I can call" with questions.
So began the Andersons' Great Adviser Search, an odyssey that would take months and immerse the couple in the intricacies of the financial-advice business. Finally, in March, Greg handed an adviser a check for $250,000 -- the first installment of the Andersons' investment program. Greg's meticulous ways, his travels and the time advisers need to craft proposals stretched the process, but he and Michelle are exhaling. Says Michelle: "We should have done this long ago."
Lofty goals
Why is it so challenging and time-consuming to find an adviser? The difficulty stems in part from the growth of the financial-services industry. Once, the rich had bank trust officers and everyone else used commissioned stockbrokers and life-insurance agents. You paid a lot, but you knew where to go.
The world changed about 30 years ago. The first licenses for CFPs, or certified financial planners, were issued in 1973. Discount brokerages arrived in 1975. Brokers and insurance agents became "financial consultants." Eventually banks jumped in and consumer options exploded. In today's field, there are good and bad brokers, financial planners and the like, and finding out whether you're getting a salesperson or a counselor can take time. Don't be in a rush.
Scroll back one year. As Greg and Michelle begin their search, they aren't thinking about the evolution of investment advice. Their priorities are investing their money and finding someone accessible and trustworthy. Their $5-million target, which could generate about $240,000 of income a year for 30 years, is not outrageously high. To reach that target by 2026, they need to save $50,000 per year (in addition to their $650,000 in seed money) and earn a return of 7.6%, not counting taxes. So Greg and Michelle do not need to shoot the moon. But, at the start, Greg dreams of finding a genius who can clock 12% returns -- a tall order. Michelle says 9% (also no cinch) would be wonderful.
The Andersons decide to look into three types of practices: a full-service securities firm, a private-client adviser affiliated with a bank or investment firm, and an independent planner. Putting their own twist on financial planners' custom of asking each potential client to fill out a questionnaire, Greg and Michelle create a Q&A for the planners and resolve to give extra credit for full replies. But whom to call? Basically, they have to guess. Greg and Michelle look at J.D. Power ratings, read magazines and scour Web sites. Eventually, they contact A.G. Edwards and Raymond James Financial, two national, full-service firms headquartered far from Wall Street.
On a Friday in November, Greg is just back from a four-day trip to Chicago and has a date with Sidney and Edward Katz, father-and-son brokers for A.G. Edwards who call themselves the Katz Financial Team. (Michelle is taking Mary Claire to day care and will join him later.)