Why This Matters:
– Dan Mavraides
Five Things I Learned in Hiring a Financial Adviser
By Brian Hershberg
For 25 years, I managed my family’s finances myself. Then I had one of those milestone birthdays earlier this year that makes you think about life, death and, hopefully, retirement.
So I finally decided to hire a financial adviser to help.
It wasn’t because I suddenly decided I couldn’t manage our investments and day-to-day finances. It was because I began asking questions that I wasn’t sure I could answer. What would happen if I suddenly lost my job? Have we saved enough for retirement? And if I die tomorrow, would my wife know what we owned, where everything was and what to do next?
I also worried that after several strong years for U.S. stocks, our portfolio had become too concentrated and exposed to a crash or correction. I hadn’t rebalanced in years and I wanted to reduce some of that risk, diversify our holdings and start preparing for some worst-case scenarios.
My first mission was to find an adviser. As a Wall Street Journal features editor—and involved in many articles on wealth management—I knew what I wanted: a fee-only adviser who would act as a fiduciary. This would ensure that any advice would be free from conflicts of interest by commission-driven brokers or advisers. I searched the National Association of Personal Financial Advisors website and contacted several fee-only firms in my area.
I figured I also knew what to expect. But the process of interviewing advisers and eventually hiring one taught me things about financial advice that I hadn’t appreciated from years of writing and editing stories about it. It also taught me a few things about myself as an investor and saver.
Here are five lessons I learned from the hiring and onboarding process.
1. The fit goes both ways
The first adviser I contacted got back to me the day before my 50th birthday, and asked about our finances. After hearing the numbers, the adviser told me I had done well.
Then came the bad news: The firm typically didn’t work with clients below a certain asset level, and I wasn’t even close to it.
It was a sobering rejection, and made me realize that finding an adviser isn’t like hiring a contractor who actively bids for your business. Many advisory firms have a particular kind of client they serve—be it “high net worth” or company founders or some other niche.
So I kept looking and found two other advisory firms that seemed promising. The first one was close to my home, but made me nervous: While the firm accepted clients regardless of account size, it was run by a lone adviser who was relatively new to the industry. The second firm, however, had several advisers on staff, a track record of nearly 30 years and, most crucially, a willingness to work with a relatively small client.
After an initial meeting where I summarized our financial situation and heard the firm’s investing and planning philosophy—a systematic approach focused on growth using primarily passively managed index mutual funds—I was ready to sign on.
But even though I managed our household finances, I was told I first had to bring my wife into the process to share her questions and perspectives on such matters as risk tolerance and retirement. That made sense. After all, how can an adviser make a holistic plan if we aren’t all on the same page about our goals, our concerns or our relationship with money?
2. My finances were messier than I thought
I thought I had a pretty good handle on our finances. Then the adviser’s onboarding checklist arrived.
Investment accounts were the easy part. To plan holistically for our household circumstances, the adviser wanted insurance policies, employee-benefits material, estate documents, tax information and other records that I hadn’t looked at in years or knew where to find.
My filing system, such as it is, was a bit haphazard. But the exercise also had a benefit: It forced me to see the whole picture, and exposed the gaps in my system, such as a heavy tilt toward the tax-deferred savings in a 401(k) versus the posttax savings in a Roth IRA. Better to find out now rather than years from now when I’m set to retire.
3. Fee-only doesn’t mean inexpensive
I knew I wanted a fee-only fiduciary adviser because I didn’t want conflicted, commission-driven advice. What I hadn’t fully comprehended is how much an ongoing financial advisory relationship would cost.
The firm that we hired charges an annual fee ranging from 0.5% to 1.25% of assets under management, assessed quarterly based on the market value of assets on the last business day of the previous quarter. It’s a fairly typical fee arrangement for fiduciary advisers, with the percentage fee falling as your assets under management rise. Right now we are on the high end of the fee scale because most of our assets are in company-sponsored 401(k)s and so remain outside the adviser’s purview.
But at some point the annual fee would rise if we choose to transfer those 401(k) savings to an individual retirement account and bring them under the advisory umbrella. The fee then will fall as a percentage of assets but the dollar amount will likely rise substantially. Thankfully that’s a decision for another day.
Ultimately, for our household, we decided the cost was worth the peace of mind even if it was a bit hard to swallow. Besides portfolio management, we’re paying for retirement planning—both the accumulation and decumulation phases—tax and insurance guidance, estate planning and a sounding board for decisions I had long made alone and with little regard for long-term consequences.
4. Risk is in the eye of the beholder
I went into the process primarily worried about our allocation to U.S. stocks, which far exceeded recommended norms. One of the adviser’s first recommendations was to rebalance our savings across accounts and bring in greater diversity.
That brings me to one of the more surprising lessons so far: how I perceive risk. I was looking at it purely through the lens of exposure—our portfolio was overly concentrated in large-cap, domestic stocks that have surged over the past several years—and so I needed to reduce risk.
I might have done that by adding a value-stock fund, some bonds, maybe an international fund or an alternative asset class like real estate as a means of derisking and diversifying. But one of the advantages of hiring an adviser is getting a different perspective from someone who has an inside view of our holdings. And he saw our portfolio risk in a different way.
For example, I had always considered growth stocks to be riskier than value stocks as their valuations are typically higher and prices more volatile. But portfolio risk isn’t a zero-sum game. Concentrating too heavily in value stocks, my adviser said, creates a risk that a portfolio won’t secure the returns needed to fund a potentially long retirement.
The lesson wasn’t about which class of stocks is safer, but rather that diversification means not only bulwarking your portfolio against downturns but also enhancing your chances of long-term success. Without taking an appropriate amount of risk, we’d be leaving ourselves vulnerable to falling short or having to scale back in retirement.
5. Letting go is hard
For half my life I made nearly every long-term financial decision for our household, from our 401(k) contribution rates to college financing for our son. Then I hired someone to essentially tell me that some of those decisions were wrong, or at least not in our long-term interest, and what changes to make.
I knew I wanted to rebalance our holdings across accounts and reduce the overall risk, but selling investments that had performed well was tougher than I expected. I hadn’t realized how emotionally attached I had become to inanimate holdings or to my own sense of financial savvy. I still find myself at times checking prices of since-sold holdings—like a fantasy-football manager checking on what my inactive players are doing—but I am learning to take solace in the comfort of a better-balanced and more-comprehensive financial plan.
In the months since we began working with our financial adviser, I’ve mostly adhered to the plan and taken the prescribed actions. I’m not going to blindly follow the adviser; after all, his judgment could be flawed and he has biases just like I have mine. But even if I don’t have this adviser forever, the lessons I’ve learned in working with him have been well worth the time and the money.
