Ask Your Advisor: What Don't You Do?
By Larry Light, Editor-in-Chief
Dec. 1, 2013
One of the first questions to ask, when shopping for an advisor, is what the person does not do.
Just as you won’t find a doctor who can treat your allergies and clean your teeth, it’s rare for one advisor to handle such disparate areas as investing, insurance, trusts and inheritance. You may need to spread the work around.
Sure, lots of advisors can handle your basic needs, such as drawing up a financial plan and running your money. But for other stuff, specialists are called for.
Not everyone can know everything, especially in the maddeningly complex, ever-changing world of personal finance. Even a financial savant like George Soros, an expert in investment securities and currencies, would be puzzled by the intricacies of tax law.
Advisor firms catering to multi-millionaires, such as US Trust and Northern Trust, tend to have the full panoply of specialists all under one roof. Some large registered investment advisor firms and major brokerages have teams on hand to handle non-investing matters like trusts and insurance. But that breadth is scarce elsewhere.
As our company’s chief executive, Nick Stuller, put it in a blog entry: “For investors, it is critical to get a clear understanding of the things your potential advisor is doing for you. Ask the blunt question, ‘What services do you not offer?’ If you do not get a clear, specific answer, find another advisor.”
Of course, you must insist that any advisor who refers you to a specialist disclose any financial relationship with the expert. If your advisor receives a fee for the referral, that doesn’t automatically mean that the specialist is bad. The point is that you need to know about all financial arrangements that affect you, so you can decide.
Using different advisors is not a matter of the size of your holdings, but their complexity. There are lots of moving parts in many people’s lives.
Take insurance. What if you have more than one home, an old car collection or undeveloped land? What if your child is handicapped? What if your hobby is deep-sea diving? Each of those situations requires expert risk assessment. You need someone knowledgeable enough to assess how much and what kind of coverage applies.
Next month, we’ll look at the intricacies of having more than one advisor for different needs.