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Navigating the Advisory Jungle
Elizabeth Harris
01/01/2006
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The number of ultra-affluent individuals in North America has grown by more than 7 percent each year since 2002. But
the number of firms offering financial advice to the wealthy has ballooned by
more than 13 percent per annum. There are now more than 8,600 advisory firms
registered with the SEC, and thousands more are overseen by state regulators. A
dizzying variety of institutions—among them insurers, brokers, banks, trust
companies, multifamily offices and, increasingly, independent firms—are
aggressively pursuing financial advisory mandates. So how does one
choose?
This is an embarrassment—and dilemma—of riches. Locating a capable
and trustworthy advisor in a field boasting some of the best—and, unfortunately,
many of the worst—minds in the financial services industry often feels like
hacking blindly through a dense jungle teeming with hidden perils. In the
articles that follow, we attempt to shed some light on this thicket to help our
readers navigate through it, and, with an investment of time and effort (and a
bit of luck) to find a talented advisor with whom to build a strong long-term
relationship.
 It is the nature of the financial industry to attempt to gain
economic efficiencies by creating one-size-fits-all products and services. But
the advisory needs of affluent individuals can really be met only with bespoke
solutions. Finding the right match is therefore crucial. An individual like
Allan Avery, a pharmaceutical industry executive who needed to manage a large,
concentrated stock position, may have very different problems than entrepreneurs
such as Klaus and Jami Heidegger, who sold their cosmetics company, Kiehl’s,
several years ago. We recount how Avery, the Heideggers and several others went
about their search for that ideal advisory relationship, beginning on page
69.
The first lesson to draw from their experiences is that affluent
individuals should never settle for a one-size-fits-all relationship. “Look for
an advisor specialized in working with people like you,” counsels Chris
Dardaman, a certified financial planner with Polstra & Dardaman in the
Atlanta area, who works with affluent clients. “There’s a big difference between
planning for young doctors and retiring executives.”
Advisors’ skills must
be commensurate with the challenges posed by the financial goals of their
clients. These are becoming ever-more complex, and clients are becoming more
demanding. The most satisfied affluent investors expect to hear from their
advisor four times in any six-month period, says Jack May, senior vice president
with SEI Investments’ Advisor Network, an Oaks, Pa.-based provider of wealth
management systems to independent advisors. The quarterly client meeting is
clearly a thing of the past. “There is really a growing gap between what
advisors have historically done and what clients are looking for,” May says.
“And this gap seems to be growing wider.”
“People know their cholesterol levels really well, but if you asked them for their three-year return on their portfolio, few of them could provide that.”
–Jack Brod, principal with Vanguard asset management services. |
The best advisors work hard to
bridge that gap, but the responsibility for finding them remains with the
client. Oddly, despite affluent individuals’ often-voiced dissatisfaction with
their advisors, many still do not invest the effort needed to find a good match.
Recent research by the Spectrem Group, a Chicago-based consulting firm, revealed
that most individuals with $5 million or more in assets do not spend the time to
conduct a careful search. “It seems ad hoc or random how some people choose an
advisor,” notes Catherine McBreen, a managing director at Spectrem. This
lackadaisical approach can leave individuals at the mercy of the worst elements
of the financial advisory world—mediocre firms seeking primarily to amass assets
under management.
These types of firms cannot meet the increasingly demanding
standards of today’s private investors. Spectrem’s research shows that clients
prize responsiveness and trustworthiness above all else: 42 percent of those
surveyed cited a lack of confidence or trust as the primary reason for seeking a
new advisor. The search for a trustworthy advisor leads many, like Avery and
Phil Strongin, a retired commodities executive, to rely on personal
recommendations. Indeed, nearly half of Spectrem’s survey respondents picked an
advisor based on a tip from a friend or family member.
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