Financial Filter for choosing an investment person
March 18, 2009 5:35 PM Subscribe
Financial Filter: Picking a New Financial Advisor and Evaluating Their Plans
Mefites, I need your help. I am helping my mom, a sixty-seven year old widow, try to find a new financial advisor and evaluate their plans of action. I am twenty-six, with no background in investing or finance, and I feel overwhelmed.
Here's the back story: In 2001, my estranged much older brother recommended my mom invest with a large investment firm (think Merrill Lynch, Morgan Stanley, etc.) where he, too, had invested his money. My mom, like me, does not have a background in finance, economics, or investing. Since then, she has had four different financial advisors at the firm. Long story short, the last one was the worst because he did the most damage.
My mom is ready to get the hell away from this investment firm and go somewhere else. She and I have already met with a small, two man investment firm as well as a seemingly reputable Edward Jones financial advisor. We asked each firm to draw up a plan of action to help her stabilize her finances and possibly recoup some of her losses.
The problem is: How do you know if someone is reputable and honest? I've used FINRA's BrokerCheck and the SEC to check up on the advisors we are thinking of using. One of them (one of the two advisors at the small, two man firm) has had a customer dispute when, in the past, he worked at Merrill Lynch and reportedly placed a customer in investments that were deemed inappropriate. How do you evaluate a financial advisor beyond the checklists that the SEC, FINRA, and others recommend? How do you evaluate their plan of action without going to yet another fianancial professional? I know there's no simple magic answer, but maybe some of you have advice that can help us. What worked when you picked your advisor/broker?
I'm scared we'll end up in the same situation and I'm trying to avoid that at all costs. My mom has worked incredibly hard her entire life to scrape together what she has and I don't want her life savings to disappear because of someone else's greed. Her friends keep their money in bank CDs or under their mattresses, so there isn't anyone else we know to ask.
We have meetings with the two new firms this weekend. Thanks in advance.
Mefites, I need your help. I am helping my mom, a sixty-seven year old widow, try to find a new financial advisor and evaluate their plans of action. I am twenty-six, with no background in investing or finance, and I feel overwhelmed.
Here's the back story: In 2001, my estranged much older brother recommended my mom invest with a large investment firm (think Merrill Lynch, Morgan Stanley, etc.) where he, too, had invested his money. My mom, like me, does not have a background in finance, economics, or investing. Since then, she has had four different financial advisors at the firm. Long story short, the last one was the worst because he did the most damage.
My mom is ready to get the hell away from this investment firm and go somewhere else. She and I have already met with a small, two man investment firm as well as a seemingly reputable Edward Jones financial advisor. We asked each firm to draw up a plan of action to help her stabilize her finances and possibly recoup some of her losses.
The problem is: How do you know if someone is reputable and honest? I've used FINRA's BrokerCheck and the SEC to check up on the advisors we are thinking of using. One of them (one of the two advisors at the small, two man firm) has had a customer dispute when, in the past, he worked at Merrill Lynch and reportedly placed a customer in investments that were deemed inappropriate. How do you evaluate a financial advisor beyond the checklists that the SEC, FINRA, and others recommend? How do you evaluate their plan of action without going to yet another fianancial professional? I know there's no simple magic answer, but maybe some of you have advice that can help us. What worked when you picked your advisor/broker?
I'm scared we'll end up in the same situation and I'm trying to avoid that at all costs. My mom has worked incredibly hard her entire life to scrape together what she has and I don't want her life savings to disappear because of someone else's greed. Her friends keep their money in bank CDs or under their mattresses, so there isn't anyone else we know to ask.
We have meetings with the two new firms this weekend. Thanks in advance.
Response by poster: I have been in the process of reading everything I can that is applicable, but I'm juggling work and I am under contract for a book. No matter how much I read, it seems like I will always be a layman investor, but I am trying to educate myself.
posted by Coyote at the Dog Show at 6:17 PM on March 18, 2009
posted by Coyote at the Dog Show at 6:17 PM on March 18, 2009
I used to work as a financial planner and I am still in the financial services industry. It sounds as though you're quite familiar with the regulator's sites, but you're right it doesn't provide the information that you truly need. Finding a great adviser is tough because most are obligated to sell investments and not take the time to really understand their clients' personal situations. On top of that, a lot of advisers (especially in the big brokerage houses) push certain limited mutual fund wrap programs or worse--annuities that are loaded with fees.
So, I know, I know. We obviously recognized all the pitfalls already--what to do then? I would continue to interview planners and ask them for:
*specifics regarding their fee structure
*types of investments they can trade for your mother (you want to hear individual stocks and bonds, mutual funds and exchange traded funds (ETFs) )
*what their ongoing monitoring process is (the sad fact is that the more $$ your mom has then the more attention to her account she'll likely get).
The best bet may also be to contact a firm that offers a simple brokerage account and the option to work with a planner if you wanted to (i.e. Fidelity or a Vanguard). They're more fee conscious and your mother would likely be able to buy any type of investment that's most suitable for her. Good luck.
posted by arizona80 at 7:15 PM on March 18, 2009
So, I know, I know. We obviously recognized all the pitfalls already--what to do then? I would continue to interview planners and ask them for:
*specifics regarding their fee structure
*types of investments they can trade for your mother (you want to hear individual stocks and bonds, mutual funds and exchange traded funds (ETFs) )
*what their ongoing monitoring process is (the sad fact is that the more $$ your mom has then the more attention to her account she'll likely get).
The best bet may also be to contact a firm that offers a simple brokerage account and the option to work with a planner if you wanted to (i.e. Fidelity or a Vanguard). They're more fee conscious and your mother would likely be able to buy any type of investment that's most suitable for her. Good luck.
posted by arizona80 at 7:15 PM on March 18, 2009
I notice your profile says the Ozarks--are you anywhere near Memphis? If so I have a recommendation for you. I realize the Ozarks can mean anything from Arkansas to Oklahoma to Missouri, but I didn't think it could hurt to ask.
posted by Mimzy at 7:53 PM on March 18, 2009
posted by Mimzy at 7:53 PM on March 18, 2009
You might want to poke around and ask questions over at the boglehead's forum. I pulled this up over there. They're a pretty sane bunch - very much a buy and hold type crowd and they offer good advice from what I've seen.
posted by philad at 12:05 AM on March 19, 2009
posted by philad at 12:05 AM on March 19, 2009
Financial planners are unbiased when they make their income by customers paying them a fee, rather than by commissions or percentages of money invested or of gains. The key term you want is "fee-only." (Note that "fee-based" is not the same.) NAPFA lists fee-only advisors, and their website has good info about why a fee-only advisor is what you probably want. All members also must sign a strict code of ethics. You need to register to do a search for member advisors near you, but I did, it's free, and I haven't gotten any spam.
In addition, you mention that your mom's last advisor was the worst because he "did the most damage." I'm not sure if you're referring to the past 3/4 of a year or so. With everything down so much, if your mom had any market exposure at all, no one but a very lucky and/or clairvoyant advisor may have done any better.
posted by daisyace at 5:53 AM on March 19, 2009
In addition, you mention that your mom's last advisor was the worst because he "did the most damage." I'm not sure if you're referring to the past 3/4 of a year or so. With everything down so much, if your mom had any market exposure at all, no one but a very lucky and/or clairvoyant advisor may have done any better.
posted by daisyace at 5:53 AM on March 19, 2009
Response by poster: arizona80: Thanks for your input, I'll definitely use your suggestions.
Mimzy: I'm in the Southwest Missouri/Northwest Arkansas region. Thanks for the offer!
daisyace: The last advisor, "Sam" was a young man, who, at the beginning, was okay. As time went on, he became very successful and became known as one of the region's best fianancial advisors. With his success came an inflated ego and aggressive personality. When my mom would meet with him alone, he would say he was conservatively investing her money as she had requested, but when I looked at the financial reports it was another story. He heavily invested her money in individual stocks and had money managers selling and buying stocks almost every week, which, as I understand, is not what one should be doing at her age. Other fees were eating up a lot of money. My mom, however, trusted him and would not listen to my sister and I when we asked her to get a new advisor.
When I went with her to meet with him for the last time, I called him on his heavy stock trading, which he did not appreciate and chewed me out. That was when my mom finally realized he was a Jekyll and Hyde. Within a few weeks, the advisor had taken a job with another large firm for a huge amount of money.
The man who "inherited" her account has said that "Sam" had done a lot of other risky and unethical investing and that it was possible he would be investigated.
I realize that everyone is down in the market, but what he did, according to others I have spoken with, borders on irresponsible and reckless.
posted by Coyote at the Dog Show at 6:32 AM on March 19, 2009
Mimzy: I'm in the Southwest Missouri/Northwest Arkansas region. Thanks for the offer!
daisyace: The last advisor, "Sam" was a young man, who, at the beginning, was okay. As time went on, he became very successful and became known as one of the region's best fianancial advisors. With his success came an inflated ego and aggressive personality. When my mom would meet with him alone, he would say he was conservatively investing her money as she had requested, but when I looked at the financial reports it was another story. He heavily invested her money in individual stocks and had money managers selling and buying stocks almost every week, which, as I understand, is not what one should be doing at her age. Other fees were eating up a lot of money. My mom, however, trusted him and would not listen to my sister and I when we asked her to get a new advisor.
When I went with her to meet with him for the last time, I called him on his heavy stock trading, which he did not appreciate and chewed me out. That was when my mom finally realized he was a Jekyll and Hyde. Within a few weeks, the advisor had taken a job with another large firm for a huge amount of money.
The man who "inherited" her account has said that "Sam" had done a lot of other risky and unethical investing and that it was possible he would be investigated.
I realize that everyone is down in the market, but what he did, according to others I have spoken with, borders on irresponsible and reckless.
posted by Coyote at the Dog Show at 6:32 AM on March 19, 2009
I know you asked for an investment advisor. But I might suggest you are capable of doing this yourself using some simple online fund screening tools and doing some reading on allocating your investments between stocks and bonds. Don't be intimitaded. In fact I'm betting that you can do a much better job of investing your money at a much lower cost then nearly anyone else could. I am making the assumption that you will only invest in no-load funds when I say this.
If you have more complex issues surrounding tax and estate planning I would recommending seeking out a fee only advisor. His incentive is servicing your needs not churning your account.
Also I'm the last person in world to suggest suing, but if it turns out this guy "Sam" really was doing inappropriate things and the brokerage now realizes that, you should try to get yourself made whole for some of the things he did. Of course the guy could have also told you that because "Sam" doubtlessly was hired by his new firm predicated on him bringing a large % of his book along with him.
posted by JPD at 7:06 AM on March 19, 2009
If you have more complex issues surrounding tax and estate planning I would recommending seeking out a fee only advisor. His incentive is servicing your needs not churning your account.
Also I'm the last person in world to suggest suing, but if it turns out this guy "Sam" really was doing inappropriate things and the brokerage now realizes that, you should try to get yourself made whole for some of the things he did. Of course the guy could have also told you that because "Sam" doubtlessly was hired by his new firm predicated on him bringing a large % of his book along with him.
posted by JPD at 7:06 AM on March 19, 2009
Thanks for the clarification that more was going on than just the downturn. Sounds awful. The recommendation to go fee-only is exactly because, otherwise, advisors have financial incentives to do some of the kinds of things it sounds like he was doing. Fee-only compensation removes those incentives.
posted by daisyace at 9:26 AM on March 19, 2009
posted by daisyace at 9:26 AM on March 19, 2009
The Montly Fool has some good perspectives on what it means to be working with a full-service (or as they like to chide, full-price) financial advisor, or whether you should go it alone. Its located in their investment basics section. Its pretty easy to read and follow. I would also try to seek out some age specific advice on how your mothers money should be handled in this stage of her life.
posted by shimmer at 9:40 AM on March 19, 2009
posted by shimmer at 9:40 AM on March 19, 2009
Response by poster: Followup Post:
If you find yourself in this situation, educate yourself as much as possible. I found this to be a good introductory article: The Wall Street Journal on Seven Questions To Ask
This is what I learned: Research their background. Look them up on FINRA. Ask for their fees and services in writing. Ask if they will handle your account or if other people will be involved and if they advocate using money managers. Money mangers can end up costing you a lot of money. Start reading up on investing. The Wall Street Journal's Personal Finance section has been helpful. Read the FAQs at FINRA about selecting an investment professional. Ask for references. Inquire about what financial products they recommend for their clients and their fees. Read the prospectus before you buy and pay attention to the fees. Ask your CPA who they use or who they would recommend. If you feel insecure going alone, take someone with you. Think about a fee-only planner who will only charge for his time.
YMMV
posted by Coyote at the Dog Show at 6:27 PM on April 29, 2009 [1 favorite]
If you find yourself in this situation, educate yourself as much as possible. I found this to be a good introductory article: The Wall Street Journal on Seven Questions To Ask
This is what I learned: Research their background. Look them up on FINRA. Ask for their fees and services in writing. Ask if they will handle your account or if other people will be involved and if they advocate using money managers. Money mangers can end up costing you a lot of money. Start reading up on investing. The Wall Street Journal's Personal Finance section has been helpful. Read the FAQs at FINRA about selecting an investment professional. Ask for references. Inquire about what financial products they recommend for their clients and their fees. Read the prospectus before you buy and pay attention to the fees. Ask your CPA who they use or who they would recommend. If you feel insecure going alone, take someone with you. Think about a fee-only planner who will only charge for his time.
YMMV
posted by Coyote at the Dog Show at 6:27 PM on April 29, 2009 [1 favorite]
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posted by yoyo_nyc at 5:59 PM on March 18, 2009