Can you trust your finacial advisor? Hehe's how three families found financial advisors to help secure their wealth - Family Finances

Black Enterprise, Nov, 2002 by Donald Jay Korn

FOR YEARS, ATTORNEY MICHAEL D. PEGUES LOOKED FOR A financial advisor he could trust--with little success. "The people I met might have asked me questions," says Pegues, 40, "but they didn't really listen. They all wanted to sell me life insurance right away without regard to the total retirement plan."

Two years ago, Pegues, a Dallas resident, hooked up with Kevin E. Davis C.F.P., a financial planner with Consolidated Financial Services. "We both write columns for a Website, and we met at a dinner sponsored by the site," Pegues recalls. "Kevin followed up a few times, asking how I was doing. I knew he had helped the parents of a colleague at my former law firm, so I decided to meet with him even though I was pretty skeptical about financial advisors in general."

In this season of discontented investors, Pegues, an equity shareholder at Munsch, Hardt, Copf & Harr P.C. law firm, reports he is more than satisfied with Kevin's advice. "I have had some losses, but they could have been a lot worse considering what's been happening in the stock market," he says. "Now, I don't make a move without consulting Kevin."

FINDING THE RIGHT ADVICE

Indeed, with the stock market far below its peak levels of early 2000, many investors are seeking the guidance of brokers, financial planners, and money managers. There have been, however, far too many reports of incompetence and corruption among such professionals. Many suspect that the internal sales quotas or high commissions they can earn at their clients' expense motivate some brokers and planners. Nevertheless, there are honest financial advisors you can trust--if you take the time to find them.

For Pegues, the decision to work with Kevin stemmed from a refreshingly different approach. "Kevin asked me a lot about my family situation," says Pegues, "and he asked to sit down with my wife, Sonya, too. The other advisors just wanted to talk with me because I'm now the only breadwinner, but Sonya has a finance degree and had a successful career before she decided to stay home with our children. She knows more about these matters, so I was glad that Kevin wanted to include her in our planning."

After some initial fact-finding with the couple, "I determined that Michael and Sonya were relatively conservative investors who were more interested in meeting their goals than in trying for the highest possible returns," says Kevin. "Therefore, I recommended a balanced portfolio with two-thirds in stocks and one-third in bonds. In the past two years, the bonds have helped to offset a down move in stocks." The Pegues' portfolio is down 7.6% for the year, as of July 31, while the Standard & Poor's 500 index was off 21.05% over the same period.

Moreover, Kevin recommended that the couple's stocks be mainly held in a mix of mutual funds. "With mutual funds," he says, "you're depending on the company's research staff to help you pick good companies while avoiding trouble spots such as Enron. In particular, the American Funds group has a good record in this area."

KNOW WHEN TO FOLD `EM

On the other hand, some investors will prefer to invest in individual stocks rather than funds. "Again," says Kevin, "diversification is vital. You're less exposed to problems at any one company if it makes up a small portion of your portfolio. Even so, you should read a company's annual report and do other research before you invest. After you invest, be prepared to sell the stock if it drops by more than 10%. You might not like a 10% loss, but that beats taking a much larger loss if bad news about the company continues."

Taking a big loss on a stock is bad enough. When that stock makes up most of your portfolio, such a sell-off can be tragic. "About 80% of my portfolio was held in my company's stock in 2000," recalls Hillis Davis, 39, a manager at United Technologies Carrier Corp. in Atlanta. "I feel goal about my company's future, but a lot of Enron employees felt good about their company, too. When Enron came crashing down, I realized the risk of having too much of your net worth in one stock."

By the time Enron made the head-lines, Hillis had already reduced his dependence on his company's stock "In the spring of 2001, we had begun working with a financial planner, Vicki Brackens, after a friend referred her," he says. "One of the first things she did was get me to lighten up on my company stock and reinvest in a diversified portfolio."

Hillis admits that he had some initial doubts about working with a financial planner until he discovered Brackens, who represents MetLife Securities in Syracuse, New York. "I was afraid she would just try to sell me life insurance," he says, "but I soon found out that that wasn't the case.

She asked many questions about our wants and needs and came up with a complete financial plan that ranged from investments to debt reduction."

The Davis' plan includes more life insurance, too. "We really needed more," says Hillis' wife, Suzanne, 39, a communications manager at United Technologies, "especially since last year, when I had triplets, bringing our total children to four. But Vicki has also urged us to create 529 college plans for our children, and helped us coordinate our 401(k) investments so we have a broad asset mix without duplication." The Davis' portfolio is down about 10% for the year that they've been working with Brackens, a performance that beats the returns of many other investors.