As investors close in on retirement, it’s relatively common to consider changing advisors.  I often inquire when meeting a prospective client for the first time as to why they are considering making a change, and the answer usually falls within one of two categories:  (1) They question whether or not their advisor has the expertise necessary to get them through their retirement or  (2) Their advisor is roughly their age and likely considering retirement as well, so they understandably feel the need to deal with this issue before they retire to minimize the inevitable disruption to their own retirement.

So, How Might This Search Go?

Typically, as these soon-to-be retirees begin their search, they are often met with the all too common offer for a “portfolio second opinion,” free of charge of course.  This is thought to be a risk-free opportunity for the investor and a nice complimentary service.  And perhaps to the investor, it appears to be a risk-free way to interview a potential advisor.  There are a few problems with this approach though.

“Seagull Opinions”

Not surprisingly, the second opinion happens to be the primary way that many advisors market their services and begin the introductory process with a new prospective client.  That’s all well and good, but what is the likely outcome for you as the investor?  You will probably end up with an experience where you are told everything that is “wrong” with your portfolio.  There very well may be some truth to what is being said, but much of it will be nitpicky opinions at best.  I lovingly refer to these second opinion meetings as “Seagull Opinions” because of how it must feel to a prospective client.  The advisor flies in, craps all over everything, and flies out.

It’s a risk-free approach to the advisor to handle it this way.  Think about it.  If the advisor doesn’t win the business as a result, they didn’t lose anything.  But if their efforts are successful in convincing you that your current advisor is apparently incapable, then they very well may win a new account.

The fault isn’t necessarily that of the advisor, but with the process.  In fact, I’d argue that the outcome of this approach says little to nothing about the integrity or authenticity of the advisor.  How could this be?  Let’s walk through this together.

Each advisor, as a general rule, manages money in their own way.  This could be in a way that is directed by the advisor personally or by the company that they represent.  If this advisor believes exclusively in active management, and you have a portfolio of index funds, they will likely spend a majority of the time telling you why indexing is leaving money on the table.

If you go to an advisor that believes exclusively in passive management (as I do), and you own active funds, the advisor may attempt to educate you (thereby converting you) on the merits of taking a passive approach.

If you own active funds, and it’s an active management advisor, they’ll likely tell you why the specific funds that you own aren’t as good as the ones they would recommend.

This charade could go on and on.  In other words, there is little incentive for the advisor to tell you that everything you are doing looks great and then sending you on your way.  Because what chance do they have of “winning” the business if they do that?  Probably not much.

And what do you as an investor have to gain as a result of this experience.  Again, probably not much.

Even if you’re on the same page with this potential advisor, what you’ll probably end up with is a backward-looking Morningstar report of how great you would have done if you had owned their proposed portfolio for the prior ten years which will almost always show an outperformance vs what you have been holding.  It should be obvious, but what’s important to you as somebody nearing retirement is the strategy to provide a sustainable income over the coming decades, not the return you would have received over the most recent decade.  I can think of few things less relevant.

In any case, the goal of an appropriate retirement portfolio shouldn’t be to beat some mythical benchmark or even the return of your current portfolio but to increase the probability of having a financially successful retirement.  In my opinion, not running out of money and being prepared for the ifs and buts of life and the markets is a far more effective strategy.  Which leads me to my next point.

The last thing I’ll say about this “second opinion” process is that it does an injustice to the rest of the planning that a “real” advisor has to offer.  A good retirement planner is going to do FAR more for a client than just manage a portfolio.  They are going to help with tax planning, long-term care planning, estate planning and much more.  Therefore, I believe that starting a relationship with a financial advisor with a focus solely on the portfolio is attention that is misplaced.  The initial meeting(s) should be focused on what you hope to get out of the relationship and their core principles rather than what you’ve done right or wrong within your portfolio to this point.

So, what is a better way to interview an advisor?

I am relatively unique in the sense that I do not believe that you should be required, or even asked to disclose your total financial situation in your first meeting with a “prospective advisor.”  I do, however, think that you should ensure prior to this meeting that you meet the advisor’s minimum.  Because if you do not, this entire process would likely be a waste of your time and that of the advisor.

But beyond that simple issue, I’ve always felt it was funny that an advisor (whether you know them well or not) wants you to lay all your cards on the table before you’ve even had a chance to evaluate if you might be a good fit to work together.  It’s my opinion that any additional financial information beyond satisfying the minimum can actually cloud the judgment of the advisor.

Consider this: If your prospective advisor’s minimum is $500,000 and you have $5,000,000, the advisor may be tempted to adapt their thoughts and principles to what they think you may want to hear to increase the chance of gaining your business.  If they are blissfully unaware of your financial specifics, they have no perceived reason to change their story.  Personally, I do what I can to mitigate this risk in two ways.  I actually request that prospective clients keep their financial specifics to themselves through the initial process and openly post my principles to my site to ensure the transparency of my beliefs across all client relationships.  Hopefully, any advisor that you choose to interview is at least that transparent.

Once you’ve found an advisor that you agree with in principle, then and only then should you consider baring your financial soul.

With that caveat out of the way…

What should an initial meeting and a prospective advisor look like?

If you’ve gotten to the point that you’re either considering hiring a retirement planner for the first time or considering switching advisors, the primary goal of any initial meeting should be to get to know each other and establish proper expectations.  You should be attempting to identify whether your philosophies and principles align while deciding if you like and could develop a trusting relationship with this person.  After all, you will be entrusting this person with your life savings and retirement.

The advisor should be willing and able to express their planning and investing principles in simple-to-understand terms.  If it sounds too complicated, that may be your answer right there.  Good advisors know how to communicate with clients at all levels of knowledge.

I felt it would be helpful to have a few questions you may consider asking if you’re considering making a switch.  Keep in mind that most of these answers should be specific and important to you which is why I’m not adding any additional commentary.  (If you’re interested in additional commentary, send me an email.)  Any advisor worth what you pay them should be able to answer these questions quite easily:

• Are you a fiduciary?
• Who is your ideal client?
• Can you explain how you create a retirement income strategy for your clients?
• What are your minimums, if any?
• What credentials do you have?
• What is your planning process?
• How do you manage investments?  Active or passive approach?  Or a combination?
• What areas of my financial life should I expect advice from you?
  • Retirement planning?
  • Estate planning?
  • Long-term care planning?
  • Investment management?
  • Life and liability planning?
• What are the total fees that I will pay directly or indirectly by working with you?
  • This should include fees you pay to the advisor, their firm, and any outside investment or insurance vendors.
  • Do you receive commissions?

And some questions you should hope they ask you:

• In a few years time, how will we know this has been a successful partnership?
• How often would you like to meet?
• How often would you like to be contacted?
• How would you prefer to communicate?  Phone, email, etc?
• What has been your previous experience in working with a financial advisor, if any?
  • What did you like best about that experience?
  • What did you like least about that experience?

Through the process of the advisor articulating the answers to whatever questions you may desire to ask, you should get a feel for whether or not you’d like to proceed through their process.  In some cases, this may involve paying the advisor a financial planning fee or not depending on the advisor.  I personally do not charge one, but many other good advisors that I know do charge a planning fee.  It just depends on the advisor and how they run their business.

There are literally hundreds of high-quality questions that you could ask an advisor or that a good advisor could ask you.

What should you be thinking about at the end of this meeting?

• Do you agree with their philosophies and principles?
• Do you believe you can trust this advisor?
• Do you feel comfortable with this advisor?
• Do you feel that they are genuine and authentic?
• Last but certainly not least, ask yourself, “Do I like this prospective advisor?”

It’s a little funny because, with the exception of the first question, the last four are qualitative in nature.  But having an advisor that is a “good fit” for you is critical to your long-term success and in all reality, you’ll potentially be working together for a few decades.  And for what it’s worth, my guess is that by structuring your initial conversation in this manner, your gut will probably do a great job of ferreting out who might fit you best and who you’d like to do business with long before you ever share your financial specifics.  This process will also save you a ton of time, especially if you decide to interview a few advisors.

Choosing who to hire to guide you through retirement is obviously a big decision, so I hope this helps you in your search.

If you have questions on this topic or know someone going through this search, feel free to forward this article along to them or reach out to me with any questions you may have.  I’d be happy to point you in the right direction.

Thanks for reading!

-Ashby Daniels

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