In August, I wrote about a relative's rather negative experience in finding a financial advisor (see “The Art Of The Deal,” Registered Rep., August 2007). This relative, recently retired from the medical field, was disillusioned with the business, concluding that it was more complicated than it should be. What's the difference between a fiduciary and a non-fiduciary? How good are you at picking investments? Just tell me how many dollars a year, after all fees and ticket charges, will this cost me? He had trouble getting what he felt were straight, unqualified answers to these questions.
Then there is the Great Fear (he was born during the Depression): “I don't know if I want to play the market,” my relation said. I, who had been called in to help unravel the mysteries of financial planning, was of little use. I, too, was put off by the outright promotional nature of financial advisors' sales pitches (versus real, audited performance attribution analysis). In the end, my relative was so confused — his confusion all the more frustrating considering that he made his living in the complicated field of medicine — that he decided to park his money in CDs, and live off the interest (for now, anyway). That editor's letter generated several letters, some sympathetic, some castigating. Here is a sampling.
— David A. Geracioti, Editor-In-Chief
Dear David:
In my respectful and humble opinion, I think you did your relative a huge disservice in your effort to help him select an advisor. But it sounds like the industry did a disservice to you by submitting nothing better than hypotheticals and marketing brochures.
But I am most disappointed by the fact that proper questions were not asked — by you or your relative. You said you talked with him about his goals, and came up with a risk profile of “low risk and nice returns.” That kind of result is not acceptable; it does not describe a financial goal. And financial goals are precisely what today's advisors are supposed to be helping clients meet.
A financial goal could be producing an income for the next 25 years, after taxes and cost-of-living adjustments, that will sustain one's lifestyle. A financial goal could be ensuring that he and his spouse have options for health care later in life without depleting their assets. A financial goal could be ensuring that future generations have the option to go to a college of their choice. And so on.
These goals must be specific, understandable and quantifiable in order for an advisor to generate a relevant investment strategy. True advisors are inflexible about planning around financial goals, because these goals are the central ingredient for a proper, workable plan or investment strategy. Whether the advisor works in this manner should be the discriminating factor for selection, and not, as in your example, whether there are mortgage backs in a portion of the fixed income section of a generic ``asset allocation model.
Mike Abraham
Rochester, N.Y.
Dear David:
With all due respect, I think I have had it with Registered Rep. magazine. Out of one side of your mouth I hear you talking about planning strategies; out of the other, I hear sales and “closing” techniques. For one thing, it has become a relationship business — not a sales business. We are running a practice and not a shop, and it is the clients' needs — not our needs — that are important.
Please remove me from all you distributions.
John L. Allen, CFM
The CAL Group, Merrill Lynch
Dear David:
I have been in this business for almost 14 years. I am now independent, and have been working through Raymond James Financial Services for the last 5 1/2 years. I usually read articles and editorials from RR and other magazines and toss them. But this article kind of bothered me a little.
Now why is that? Because these are the kind of people in the industry that are hard for craftsman like myself to deal with. These are what people would call the “rainmakers,” the asset gathers — the bigger, the better. Meet your client once a quarter … look at the reports … adios ‘til next quarter. You know the type; you just wrote about them. Take their money … give it to a money manager … (uh, isn't that what we are supposed to do?) … on to the next client.
There are few things that get me upset — this is one of them.
Richard Merican
Scottsdale, Ariz.
Dear David:
I'm a devoted RR reader, and have been for all of my 32 years in the business. I was discouraged to read the conclusion of “The Art Of The Deal” in the August 2007 issue. Let's send your relative a copy of Nick Murray's Simple Wealth, Inevitable Wealth and hope he reads it, as Nick suggests, slowly, with an open mind and under a tree! Then, hopefully we can welcome him back to our industry. Sorry he experienced the pain and suffering that comes with the jargon and fee obfuscation we so often present.
H. Eugene Hile
Deutsche Bank Alex. Brown
Boston
Please note that all letters to the editor have been edited for length and clarity.
