How To Pick A Manager For Your Money

Nation's Business, Dec, 1998 by Randy Myers

Randy Myers, formerly a writer and editor for Dow Jones & Co., Inc., is a financial writer in Dover, Pa.

Selecting an expert to advise you on your finances is a bit like buying a house. You should worry less about what's on the outside--a pretty coat of paint or a real-estate agent's clever spiel--and more about what's on the inside--such as a solid structure and the agent's integrity.

Just ask Glenn Quigley

Quigley is owner of Quigley's Auto Body in Lake Forest, Calif. Intrigued by the possibility of making money in the stock market last year, Quigley began buying stocks from brokers who had called him, out of the blue, on the telephone. While he had never met these brokers and knew virtually nothing about them, he was seduced by their sales pitches.

Not much happened until one of the brokers sold him shares of an IPO--a company making an initial public offering of stock. When the stock's price skyrocketed in the first few days of trading, Quigley quickly earned several thousand dollars. Filled with enthusiasm, he bought into another IPO. This time, he lost about $18,000. When yet another broker called pitching another IPO, Quigley balked--then relented after the broker promised he wouldn't let him lose more than $200. By late September, Quigley was holding paper losses of several thousand dollars on that trade, too, and was having trouble getting the broker on the phone.

"I'm not even sure I would use a broker again," Quigley says now. "I might trade online. And if I did use a broker, I would probably go with one of the big-name companies, somebody reputable." Kicking himself a little more, Quigley adds, "My dad does very well with stocks; maybe I should have used his broker."

As reasonable as it sounds to choose a financial adviser recommended by a friend or relative or one who's connected with a big-name firm, it's no assurance that you'll be happy with your decision, experts say.

Even brokers who work for big-name firms sometimes give bad advice or mishandle accounts in ways that can cost you dearly. And just because a broker did a good job finding stocks for your brother-in-law doesn't mean he'll be able to help you, especially if you and your brother-in-law have radically different investment goals and appetites for risk.

"Your friends and family are a reasonably good starting point for referrals, but you probably know more about their sex life than their financial life," cautions Charles A. Jaffe, a financial journalist and author of The Right Way to Hire Financial Help (MIT Press, $25). "As a result, you can't make a good judgment, on face value, as to whether their adviser would be right for you."

Financial planners agree. "A couple of times in the past, we have taken clients that have had objectives we didn't feel were compatible with our style, and it's always turned out to be a mistake for them and for us," says Frederick Raffety, a certified financial planner with Robert Lawrenz Consulting in Rockford, Ill.

If you own your own business, choosing financial advisers is especially critical because your financial life, both personally and professionally, is likely to be complex. In fact, you may need a team of advisers--a financial planner, a certified public accountant, an insurance agent, a banker, and perhaps a tax attorney and a stockbroker.

Choose properly, and this team can help you manage your money for a lifetime. Choose poorly, and you may find yourself going through the selection process over and over again.

Ranking The Priorities

What should you look for in an adviser? Experts universally agree that the most important quality is trustworthiness. Sure, you'll also want somebody with experience and good credentials, solid organizational skills, and the ability to communicate. But if you can't trust that person with your money, the other qualities are moot.

"Go with your gut," says Mary Calhoun, president of Calhoun Consulting Group, a Waltham, Mass., firm that acts as a consultant and expert witness in securities arbitration and litigation cases. "Don't invest your money with anyone you don't feel absolutely confident about."

The big question, of course, is how to reach that level of confidence with someone you're asking to help you with arcane financial matters you may not fully understand.

If you don't know anything about asset allocation, tax planning, or life-insurance trusts, for example, it can be hard to know if the broker, accountant, or insurance agent you're talking to knows what they're doing-or even if they will act in your best interest.

Here's a simple solution: Don't hire any adviser who can't explain things to you in a way that you understand--and understand well enough to explain to somebody else. If that means you need an adviser who will take two hours to explain a particular investing concept or strategy, find one who will do it.

And if the adviser charges for that time, don't complain.

"It's incredible to think that people who wouldn't hesitate to pay a mechanic to help them with their car can't stomach the thought of paying somebody to help them with their money, which is a much more important asset," says Jaffe.