Trusted Advisor or Product Pusher: Where Does Your Wealth Manager Fit In?

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Many wealth managers approach investors positioning themselves as "trusted advisors". Can you develop this type of relationship with someone who is compensated for selling product, or should you seek out a wealth manager who operates without conflicts of interest between the firm and the client? As more independent advisers arise, this question will present itself more frequently to investors.

One of the biggest complaints investors have is that they feel they are being "steered" towards specific investments by their advisor. Frequently, these products are manufactured and/or managed by the firm that employs the relationship manager.

They can take the form of mutual funds, managed accounts, or partnerships. This is true for brokerage firms, investment banks, and trust banks. In many instances, the compensation of the "trusted advisor" is largely impacted by how much proprietary product he or she can sell. With that type of motivation in place, it is fair for investors to ask if their best interests are being placed first.

Some large financial services firms responded to investor's lack of trust by creating a "platform" that includes a limited number of outside advisers side by side with their own offerings. This is frequently presented in the form of a "wrap" program that entails a large, all-encompassing fee.

The wrap fee includes compensation to the investment manager, the advisor, and the adviser's employer. These layers of fees add up. While convenient, it may prove to be an expensive proposition to the investor. As a result, many investors are gravitating to fee-only independent wealth managers who offer open architecture in a conflict-free manner.

The role of a fee-only advisor is quite different from that of the more traditional relationship between the client and his broker or trust officer. A fee-only wealth manager does not and will not manufacture or sell investment products; their only source of income comes directly from their clients.

They will refuse compensation from investment managers, insurance companies, banks, and other sources of investment merchandise. His or her role is to work with you to structure a multi-manager portfolio that fits your specific investment needs. The advisor will likely spend time with you to understand your goals, objectives, and risk tolerance long before the investing process begins.

Many fee-only advisers have Certified Financial Planners on staff. These professionals will work with you to ensure that you have the right structure around your assets (i.e. wills, trusts, etc.) to help you meet you your long-term financial goals in the most tax efficient way possible.

It is becoming more difficult for investors to pinpoint outstanding investment talent. There are so many choices that one can become overwhelmed. Fee-only wealth managers offer true open architecture. They are not limited by an investment platform.

This enables them to seek out the best and brightest managers in all asset classes. You should expect that your wealth manager has conducted a thorough amount of due diligence on each of the managers in the suggested portfolio. The advisor should suggest separate accounts over mutual funds. Separate accounts are less expensive and more tax efficient than commingled funds.

Since your advisor is not compensated for transactions in your account, he or she will probably recommend that your assets be held at a large discount brokerage firm. This will help minimize overall costs to you. While you will be receiving monthly statements from your brokerage firm, the wealth manager should provide consolidated performance reporting on a monthly basis.

To review, here is what individual investors should expect from an independent, fee-only wealth manager:

 

  • A thorough independent appraisal of your current investment portfolio,
  • A discussion about what you want to accomplish with your investment capital,
  • An examination of the structures around your assets such as wills, trusts, and retirement plans,
  • A well-designed asset allocation model that fits your investment goals,
  • A suggested multi-manager portfolio that foots with your goals and objectives,
  • Thorough and ongoing due diligence on each of the managers in your portfolio,
  • Face-to-face meetings at least twice a year to update you on performance and review your objectives,
  • A strong effort to reduce investment costs (i.e. manager fees, brokerage commissions, etc.),
  • Monthly performance statements,
  • No pressure to buy or sell any investment product,
  • A fee based upon the amount of assets under advisement.

Fee-only wealth managers offer an attractive alternative to traditional sales-based financial relationships. You have the comfort of knowing that the advisor is working in your best interests and that all recommendations come from a desire to do an excellent job for you.

Copyright 2010 Massey Quick and Co., LLC - All Rights Reserved

Stewart R. Massey is a Founding Partner and the Chief Investment Officer of Massey, Quick and Co., LLC, an investment consulting and wealth advisory firm. Founded in 2004, Massey Quick provides comprehensive wealth management services to high net worth families and individuals and traditional investment consulting services to endowments and foundations. More information is available at www.MasseyQuick.com.

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