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Your Money
| Wealth Special Section
Making an Adviser
Relationship Work
By FRAN HAWTHORNE
NOV. 11, 2015
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Koren Shadmi |
In
spring 2001, after losing about $75,000 in the dot-com crash, Jerrie
Champlin and her husband, Robert Baranowski, decided it was time for
professional help.
The
couple, then living in Rockland County, a New York City suburb, found
a local
financial adviser who seemed to
have strong Wall Street experience. They were further reassured by a
90-minute interview with him in which they discussed their goals and
the adviser’s philosophy.
Over
the next three years, however, the relationship deteriorated.
“He
was not really paying attention to who we are,” said Ms. Champlin, 62,
a former business manager. “Bob would have an idea, and it would be,
‘No, that doesn’t really fit with the plan.’ He decided what level of
risk we would be willing to take.”
The
couple moved their $562,000 portfolio to a larger firm after Mr.
Baranowski met one of the principals at a
retirement-planning workshop at
BMW, where Mr. Baranowski was a senior manager. (Mr. Baranowski, 64,
and Ms. Champlin have since retired and live north of San Antonio.)
“There
was a chemistry that worked” with the new adviser, Mr. Baranowski
said. “He took into account all the other aspects of life that go with
financial planning, including our five dogs.”
More
than one-third of households in the United States regularly use a
financial adviser to assess an overall financial situation and set up
an investment strategy, according to Cerulli Associates, a global
financial services research firm based in Boston. The average such
household has $406,000 in investable assets.
Some
of those millions of investors occasionally become dissatisfied,
especially after paying fees that typically start at 1 percent to 1.25
percent of assets. Each year from 2009 to 2013, 7 to 10 percent of
North American households dropped their advisers, the research firm
PriceMetrix said in a
December 2013 report, based on
data from seven million investors. Such dissatisfaction tends to
increase in times of financial downturns, or developments such as the
recent volatility in the markets.
Among
the biggest concerns are personal rapport and communication, along
with investment returns. Other issues include location, staff
turnover, a desire for more control and outright misconduct.
“It’s
like developing a friendship,” said Leslie C. Quick III, a partner at
the investment advisory firm Massey Quick & Company, based in
Morristown, N.J., which manages $2.6 billion. “You may have gotten
your wires crossed, but if there is trust, you can always figure out
how to get back on the same wavelength.”
After
a first-year “honeymoon,” client loyalty slips over the next three
years, then stabilizes, the PriceMetrix report found.
The
strongest relationships start with a detailed discussion of matters
like lifestyle, risk tolerance, goals, investment strategy and the
kind of communication the clients want. After that, there will
typically be performance reports at least quarterly; an annual
in-person meeting lasting one hour or more, preferably at the
adviser’s office; and additional meetings, video chats, emails or
phone calls as needed.
At the
Wescott Financial Advisory Group, based in Philadelphia, which advises
on $2.3 billion in assets for more than 500 clients, Catherine M.
Seeber, a senior financial adviser, said she contacted her clients
every six weeks and sent cards for birthdays, weddings and the like.
“If you don’t communicate,” she said, “people think no one’s looking
at their needs.”
In
talking with clients, advisers emphasize that markets fluctuate and
investors need to be patient for the long term. It is unfair, they
say, to fire an adviser based on returns over less than three to five
years.
Nevertheless, when the bear inevitably lumbers in, “some clients are
going to jump around from adviser to adviser, looking for a person
who’s going to have a crystal ball,” said Robert Gerstemeier, who
until last month was chairman of the National Association of Personal
Financial Advisors.
Even
the sophisticated members of
Tiger 21, an elite club whose 345
members control assets totaling more than $30 billion, may be too
quick to want to change. Several times a year, a member will tell
fellow club members, “I’m thinking about terminating a relationship
with an adviser because their performance was terrible,” said Michael
Sonnenfeldt, a co-founder of Tiger 21.
In
about one-third of those cases, he added, fellow members persuade the
unhappy colleague to keep the adviser, by suggesting “what was a
reasonable expectation, given the complexity of the market.”
Because the best relationships are deeply personal, anything that
breaks the one-on-one bond can also be a reason to change.
People
often seek a local replacement if they move to a new area. If the
advisory firm undergoes major personnel or ownership changes, or if
the client’s particular adviser leaves, “you should reassess your
relationship,” suggested Paul Smith, president and chief executive of
the CFA Institute, a trade group that administers certification exams.
“People should be more engaged with their advisers, more questioning,”
he said.
On the
other hand, some investors might balk at spending hours re-explaining
their circumstances to a new person. To avoid that situation, advisers
work in pairs at Modera Wealth Management, the Boston-based firm that
Ms. Champlin and Mr. Baranowski now use. Thus, when one adviser
relocated to California early this summer, her 60 clients still had
her teammate, said Mark Willoughby, chief investment officer of the
firm, which manages $1.7 billion for 950 families.
Fraud,
sloppiness and other misconduct are clearly red flags. In 2012, Diane
Blasco, then 55, of New Canaan, Conn., told her broker that she wanted
to add some low-risk, high-income stocks to her portfolio of
conservative mutual funds, which had assets in the mid-six-figure
range. Instead, she said, the broker put more than $25,000 into a
risky tech stock that soon plummeted, and within less than a year she
had lost almost $12,000.
“I
looked at what he was charging, and I said, ‘I can do this myself,’ ”
said Ms. Blasco, a former sales representative and interior designer
who has begun a career coaching young people about money,
incorporating neuroscience and behavioral economics to help clients
rethink their financial habits. She transferred her portfolio to a
self-directed online brokerage firm, although she consults regularly
with a new financial planner.
A version
of this article appears in print on November 12, 2015, on page F7 of
the New York edition with the headline: Advice, Then Dissent.
© 2015 The
New York Times Company |