More and more, financial advisers are specializing.
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Some target the wealthy. Others concentrate on new retirees. Some drill down even further, tailoring their practices to specific professions, from airline pilots to physicians to professional entertainers and athletes. Some even focus on particular companies.
This can be a good thing. Americans wrap much of their identity into their careers, and it stands to reason that investors would benefit from advisers who have experience with similar clients.
Presumably, these advisers could help physicians devise strategies for paying back massive medical school debt–or guard their estates from lawsuits. Or they could help pilots facing pension cutbacks decipher a strategy to recoup some of their losses. Athletes could find help structuring windfall salaries to help pay the bills when the cheering stops.
Somewhere along the continuum between expertise and marketing, however, investors can end up with the proverbial short end in one of these relationships.
Connie Brewer worked 30 years for the telephone company in Madison, Wis., capping her career as a business services manager. She was just 48 years old when she reached the three-decade mark in 1999, but she and her husband, Marty, had built a nest egg worth about $800,000. They decided to call it quits.
The couple interviewed three investment advisers about managing their retirement funds, and they ended up hiring the one Connie met at her workplace.
“Other people I worked with had hired him,” Connie said, including one of her supervisors. The adviser seemed to be knowledgeable about the company’s retirement packages, she said.
Putting it mildly, the relationship soured in the stock market meltdown that quickly ensued, and the Brewers later filed arbitration complaints against the investment firm, alleging their money was put into unsuitable investments, among other things. After their losses, they moved to a family farm in rural Richland Center, Wis., and have both taken jobs again.
The complaints are still pending. Regardless of the outcome, the Brewers obviously regret their hiring decision, and their saga is a cautionary tale about using financial advice based on an adviser’s experience with other clients in the same field.
“Mostly, this is about marketing,” said Jim Eccleston, the Brewers’ attorney in Chicago. Older investors, in particular, are targeted by advisers who market specialized retirement planning services, he said.
The North American Securities Administrators Association last month issued an alert about increasing use of phony credentials claiming targeted expertise for retirees.
Investors should not simply choose an adviser who has worked with others in similar situations, said Patricia Struck, the association’s president and the Wisconsin securities administrator. She said it’s quite common for unscrupulous advisers to target specific companies during a layoff or early retirement program, claiming to have a large number of employees as clients.
“Never be swayed by designations” or recommendations, she said. “You want to be comfortable in the relationship.”
When Medical Economics magazine compiles its biannual list of the best financial advisers for physicians, one of the most difficult aspects of the project is determining which advisers are truly knowledgeable about professional issues and which ones are merely immersing themselves in the culture for marketing reasons, said Leslie Kane, an editor who helps compile the list.
“We count recommendations from readers heavily, but we also go out to chapters of financial planners [associations] and look for people with a strong percentage of physician clients,” she said.
“We also made sure the people on the list had ample experience, and weren’t just cutting their teeth on some of these clients,” she said. Getting recommendations from friends or colleagues is one of the best ways to find an adviser, experts say. But it’s a beginning, not an end.
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Checklist for picking a financial adviser
Here are five ways to check out a financial adviser who claims special knowledge about your profession or work status:
– Investigate designations. What do they mean? Did it involve a two-day home study course and an online exam or years of study and a proctored exam?
– Did the training include an ethics/compliance component? Did the organization perform a background check before passing its designees?
– What does the professional organization do with customer complaints? Do they actually pull the credentials of those found to have violated industry practices?
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– Check out the adviser’s disciplinary history at www.nasdr.com, call your state securities department or go to the North American Securities Administrators Association’s Web site, www.nasaa.org.
– Ask for the firm’s Form ADV, Parts 1 and 2, which describes the way the firm does business, including its compensation arrangements.
Sources: NASAA, Securities and Exchange Commission
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E-mail Janet Kidd Stewart at [email protected].