Your First Meeting with an Advisor

Years ago, a colleague of mine told me about problems he was having with his financial planner. He was disappointed with the level of service and attention he was getting, he felt the advisor was not responsive to his questions and concerns, and he was unhappy with the sales charges and fees he was paying.

It was a story I had heard many times before, typically from people who jump into a relationship with a financial advisor without doing much homework.

But my friend protested my assessment, saying he had been "meticulous" in the selection process.

He had done a background check, he interviewed two candidates (hiring the second person he met), he interviewed references, and he had done precisely what the advisor wanted during the initial meeting to get things moving when he signed on.

"Well," I asked, "did this woman lie to you? Did she tell you how you would pay her and then do something different? Did she tell you how she'd work with you, and then not live up to it?"

Sheepishly, my friend said that he had not been lied to.

"We never really got to those things," he admitted. "I didn't have a full understanding of how she works with clients and how she charges people."

The wrong time to find out that you have a problem with the way an advisor works is after he's been hired.

My friend let the planner take charge of the initial interview. Instead of a wide-ranging feel-each-other-out chat, the planner asked a raft of questions, all designed to determine how much money was involved and my friend's goals and objectives. He got caught up in the process and stopped asking the questions he had prepared. When the advisor asked if she should go ahead and prepare a basic financial plan, he liked how excited she was to do the work and liked her energy, so he gave the go-ahead.

He was told to expect the plan in three weeks.

A month later, he received by mail exactly what had been promised, an action plan for how to reach his goals. The plan suggested an asset allocation, and recommended certain mutual funds to do the job; all of those funds had sales charges or commissions. The plan lacked specific advice on how and where to cut spending to improve cash flow and reduce debt.

And the bill for this service was more expensive than expected, if only because implementing the plan would involve buying loaded mutual funds and paying a sales charge on each transaction.

The customer wanted more feedback and interaction, better explanations for charges, and help with implementation. He wanted to receive the plan in person, or at least to open it and go through it with the advisor on the phone.

The planner—widely considered one of the nation's elite advisors, by the way—clearly thought she was being hired to do a one-time periodic review, to keep front-end costs down, and to make it that the client could implement the advice on his own—picking no-load mutual funds that would allow him to follow the proscribed asset-allocation plan—or following up with the advisor and paying for whatever additional services were needed.

The miscommunication was cleared up to everyone's satisfaction after I prodded him to request a second meeting to express both his displeasure and what he expected from the relationship.

But the problem occurred because the first interview went from being a "How do you do?" to being "You're on the job." That should never happen.

Is It Worth It to Pay for a First Interview?

Before scheduling an initial meeting, find out if you will be charged for it. Some advisors are always on the clock, even for a first-time sit-down, while others charge a fee, but then rebate the initial consultation fee if you become a client. And some advisors take the meeting for free and hope it delivers business down the road.

Charging for a how-do-you-do is a privilege advisors earn when they are successful; time is their currency, precious enough that they don't want to waste it on unproductive interviews. Still, their fee actually puts pressure on you to choose them, so that your money doesn't go to waste.

Avoid initial consultation fees when possible, and never pay a consultation fee to an advisor who stands to make big money from you on contingency (upon the sale of your home, a win in your court case, etc.). If you must pay fees, schedule the advisors who charge to be the last ones you talk to—so you can cancel the interview if you find a great advisor during one of your free consultations—and be sure to do all of your background checks on those advisors in advance. You don't want to pay for a sit-down only to find out that the advisor's disciplinary history or record of legal problems makes her someone you won't hire.

By Chuck Jaffe
Chuck Jaffe is a senior columnist and host of two weekly podcasts at MarkWatch. He has also been a guest speaker on several television and radio shows.

Copyrighted 2020. Content published with author's permission.

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