A Consultative Financial Advisor

There are a variety of characteristics a successful client-advisor relationship should have. Chief among them is that the relationship must be consultative. In my practice, that involves much more than simply working together with clients in an open and honest partnership to meet their goals. Importantly, we also work hand-in-hand with our clients’ estate planning attorneys, accountants and other financial professionals. This is our expansive professional network--a talented team of trusted advisors who offer specific expertise and objective counsel when necessary.

Notably, our consultative approach isn’t limited to professionals. Although many times one spouse functions as the point person when it comes to finances, it’s imperative that both partners understand and participate in the management of the family finances. In fact, many of our clients broaden their family’s involvement by bringing their children into the planning process. Even very young children can learn something about managing the household finances, and sharing the estate planning process with adult children can be especially fulfilling.

While there’s no question that in today’s challenging market you may require the expertise and counsel of a range of financial professionals, it’s crucial that when you assemble such a team, you designate a quarterback or your personal chief financial officer. In fact, recent research from State Street Global Advisors and the Wharton School at the University of Pennsylvania found that many investors who work with multiple financial advisors without a lead advisor shoulder additional portfolio risk.

How so? Think about it. Without a consultative quarterback to foster communication and coordinate your financial plan, multiple advisors could cloud your financial picture. For example, without communication between advisors, overlapping exposures could create an unintentional overexposure to a single stock or asset class that increases your overall portfolio risk. Or, if you worked with two advisors and one underweighted small cap, while the other overweighted the asset class, you’d have an unintended market neutral exposure. Additionally, over time, your portfolio would be prone to style drift, or a critical need to rebalance might go unmet.

If you work with multiple financial professionals, we recommend designating someone like us as your quarterback or personal chief financial officer.

(Note: For a discussion of the six core characteristics--Six Cs--an advisor should have, read What Makes a Great Financial Advisor? and the Six Cs blogs on this topic.)

Know How Your Advisor Gets Paid

Know what you are paying for; and know how your advisor gets paid.

Amazingly, studies continue to show that many clients of financial advisors have no idea how they pay for the financial advice they receive. That’s certainly not how we transact with our doctors, lawyers, or contractors, so why is it true in the financial services industry? The root of the confusion could be that financial advisors use so many different compensation models.

To set things straight, it’s first necessary to divide the advising world into three camps.  First, there are advisors who earn their living by commission and therefore may have an incentive to sell you particular products.  Second, there are fee-only financial advisors like Bernhardt Wealth Management that charge clients a percentage of assets under management and operate as fiduciaries who always put the needs of clients first.  And third, there are advisors who utilize fee-based accounts but can also earn commissions on other products they sell.

Calculating fees as a percentage of the assets we manage enables us to operate on a relationship basis, rather than a transactional basis. That is, we get to know each client so that we thoroughly understand their values and goals. We then develop a long-range investment strategy that is true to those values and goals, and systematically review portfolios to ensure our clients stay on course as their circumstances and the markets change.

Further, we seek to add value for clients on a range of financial issues, well beyond managing an investment portfolio. Our fee encompasses a broad suite of personalized services, including tax planning, college planning, insurance planning, retirement planning, estate planning and philanthropic planning.

In all aspects of our relationships, we are motivated by one goal: Do what’s right for each and every client. Our clients know what they pay for our advice and that we will always recommend the course of action that is in their bests interests.

(Note: For a discussion of the six core characteristics--Six Cs--an advisor should have, read What Makes a Great Financial Advisor? and the Six Cs blogs on this topic.)

What Makes a Competent Advisor?

A trusted, competent advisor must provide the knowledge and insight necessary to chart an investment course for his clients – as well as the discipline necessary to keep them invested when markets get choppy. Moving away from the nautical metaphors, I recently heard an advisor’s role compared to a pedestrian bridge over an eight-lane highway. Yes, it’s possible to cross those lanes of traffic on your own, but getting to your destination will be a little more harrowing than if you cross safely over a pedestrian bridge.

In addition to providing investment expertise, getting clients safely over the bridge requires helping them to make good decisions. Naturally, those situations are intensely personal. However, if asked for some generic financial decision-making advice, I would say to avoid “trusting your gut.” In fact, our instincts can lead us astray when it comes to our finances. For example, the primitive “flight or fight” impulse that causes us to flee from danger is the same feeling that prompts many investors to sell on a stock’s downturn, precisely at the wrong time. The flip side, of course, is that, pumped up by what Alan Greenspan referred to as “irrational exuberance,” investors are more than willing to overpay for hot stocks.

The emerging field of neuroeconomics probes these financial decision-making idiosyncrasies—and opens pathways to better decisions. Importantly, neuroeconomics teaches that the instinctive regions of the brain constantly, and more immediately, react to stimuli all day long. Yet, we only intermittently apply the slower, more advanced cognitive part of the brain because it requires more time and energy.

Therefore, the competent advisor must ask questions, listen to clients’ answers, develop thoughtful investment and wealth management strategies, carefully monitor their progress, and serve as his or her clients' personal Chief Financial Officer. This process keeps clients from reacting emotionally in times of market stress and keeps them on the road to reach their goals.

(Note: For a discussion of the six core characteristics--Six Cs--an advisor should have, read What Makes a Great Financial Advisor? and the Six Cs blogs on this topic.)

Caring -- One of the Six Cs

Theodore Roosevelt once said, “Nobody cares about how much you know until they know how much you care.” That old adage has become almost a customer service cliché, but nowhere does our 26th president’s advice ring more true than in the financial planning profession. Make no mistake -- It is impossible to provide useful financial advice unless you really know -- and care about -- your clients. Simply, our knowledge of our clients’ current circumstances and future aspirations serves as the essential foundation for building both portfolios and solid, long-term, caring relationship.

“Caring” is the third of the six core characteristics I mentioned in What Makes a Great Financial Advisor? (I’ve written blogged about character and chemistry; competence, cost-effective and consultative round out the list.)

Caring factors into the advisor/client relationship because financial decisions are always about more than money. In that regard, it helps to have someone on your side who really understands you. Because we know and care about your family, values and goals, when we discuss your investments, we view your finances in the context of who you are as a person rather than allowing your net worth to define you and dictate a particular course of action.

Without an advocate, someone who really cares about you, it can be easy to let daily life get in the way of pursuing your dreams. We guide clients through a financial planning process that aligns their dreams with their financial resources. And, our ongoing planning ensures they have the freedom to dream big for tomorrow.

(Note: For a discussion of the six core characteristics--Six Cs--an advisor should have, read What Makes a Great Financial Advisor? and the Six Cs blogs on this topic.)

Can You Talk to Your Advisor?

Maybe you’ve seen those speed dating commercials where it’s clear in 30 seconds that the couple doesn’t click and it’s time for them to move on and keep searching for love. Chemistry is important with your financial advisor, too. Let’s face it, you have to be comfortable enough with your advisor to share your hopes and dreams -- as well as your fears.

That essential chemistry begins when you find an advisor with good listening skills. And that doesn’t mean sitting across the desk from someone who consistently nods like a bobble head doll when you talk. Really listening to clients involves inviting them to open up, taking to heart what they say, asking some follow-up questions, and helping place their goals or worries in context of their bigger financial picture.

In my book, that intangible, know-it-when-you-feel-it good chemistry serves as the foundation for problem solving. That’s because feeling comfortable with each other enables us to ask each other questions and work together to find answers.

Finally, because the planning process requires some work and it’s a relationship we hope to enjoy for the long-term, it’s worth it to put the time and energy in upfront to ensure that the financial advisor you select is someone you like. Of course, you want an advisor with the expertise and skills to manage your wealth, but it sure helps if that person is also someone you honestly enjoy meeting with.

Just as satisfaction with your co-workers affects your overall job satisfaction – and your overall happiness, so, too, can an enjoyable relationship with your advisor positively impact both the planning process and your general sense of well being.

(Note:  For a discussion of the six core characteristics--Six Cs--an advisor should have read What Makes a Great Financial Advisor? and the Six Cs blogs on this topic.)

What Makes a Great Financial Advisor?

I have a one-word answer to that question: An advisor must be trustworthy.

The Dodd-Frank Act, passed two years ago this July, was intended to increase the integrity of the financial services industry. Yet, in the last few months, we’ve read about J.P. Morgan’s $6 billion loss as a result of the “London Whale” trades, The New York Times’ expose on J.P. Morgan’s campaign to push high-priced proprietary products, and Barclays’ problem with their manipulation of LIBOR. Given these recent events, it didn’t surprise me to read an article on AdvisorOne that reported that the law firm Labaton Sucharow’s survey of 500 senior executives in the United States and England found that 24% of the respondents believe financial services professionals need to engage in unethical or illegal conduct in order to be successful.

So, with so much distrust, how do you find an advisor you can trust? Working with an advisor you can trust begins with finding a fiduciary, someone like me, who always puts your needs first. In my mind, serving as a fiduciary means possessing and upholding six core characteristics—the “Six Cs” – which I’ll cover individually in future posts.

My first C is Character. An advisor with character acts with complete integrity, loyalty, and transparency and avoids all conflicts of interest to put you first in all situations. An advisor with character provides objective guidance and sits on the same side of the table as his clients, 100% committed to putting their interests first. Character is the most essential relationship building block. It serves as the foundation on which we build a trusting bond that serves as foundation of a productive and collaborative relationship.

As Theodore Roosevelt said, “In the long run, character is the decisive factor in the life of an individual and of nations alike.”And, as the debate over regulating a universal fiduciary standard continues, the observation of Alan Greenspan, past chairman of the U.S. Federal Reserve Board, holds particular weight, “But rules cannot substitute for character.”

(Note:  You can read the a summary of the other "Six Cs" in our August 2012 article on our website.)