At the Alchemia Group we are helping our clients think & act differently in regards to their wealth and its impact on thier family - because we know it is more than just numbers and plans, it's the Balance of Art & Science with Pragmatism and Vision.

The Rules of Engagement

Do you enjoy your Advisory Relationships?


Hiring (and firing) Advisors comes with the territory known as wealth. Here’s some food for thought as you consider your own advisory relationships.


Tim’s Rules of Engagement

1.  The Advisor works for You. This sounds straightforward but is often overlooked. You pay good money in the form of fees, commissions and other compensation for services. If an advisor is difficult to reach, has little time for you, is often late for meetings or phone calls does his or her prestige excuse it? Your CPA, Attorney, Investment Manager, Insurance Professional all work for you and, as such, you are entitled to expect certain standards. A good friend of mine, John Broderick, an Insurance Professional, begins every new relationship with a set of written Rules of Engagement. This document not only outlines what his clients can expect from him but also what he needs from them to be an effective advisor. He also uses it as part of his periodic review process to help keep the relationship not only strong but effective.


2.  You should be able to articulate why you hired a particular advisor. This is one of the big lessons from the Madoff affair and other so called Ponzi schemes. Many of those who suffered losses invested in these schemes because ‘everyone is getting better returns’. These cases illustrate the power of advisor prestige and the desire to be in with what the ‘right people’ are doing. At the end of this list I’ll share an interesting list of criteria for evaluating an advisor before you hire them.


3.  Advisors should be able to communicate with you. This comes in two forms. First, you should be able to understand why You (not just all her clients) are implementing a particular strategy, be it tax, insurance investment or whatever.  Second, the best advisors are proactive in advising. This does not mean constantly selling or changing your plan. It also does not mean sending out weekly economic newsletters. It means creating in You the feeling that your advisor is thinking about you and your situation. This shows up when your updates have the flavor of ‘Here’s what’s happening, here’s what it means to You and here’s what we may want to have a conversation about.


4.  There are no free services. You are paying for everything an advisor does for you. Depending on economic circumstances having bundled services is not a problem. However, for an affluent family it is important to maintain a certain level of checks and balances among its service providers. For example, if your investment manager is also in charge of your overall wealth planning and they provide it as part of their investment management fees there is a serious conflict of interests. The manager’s interest is in retaining your investment account and all supplemental services are built to do that. An investment manager should be evaluated on their performance in that role and the wealth planner/strategist should be evaluated on their separate performance.


5.  Understand how your advisor is compensated. Again, a two part situation. First, you should never wonder ‘He is doing all this work; how is he getting paid?’ In many commission driven fields this is the grayest of areas. I believe that planning and advice should be separated out from the design and implementation of any commissionable product. In too many cases, if the compensation is only on an ultimate sale then everything before is built to lead to that sale. Second, is there any additional compensation for using one product or company over another? Award trips, bonuses, etc. can sometimes sway a recommendation. The same with referral fees for bringing in another advisor. None of these are bad in themselves but transparency around compensation avoids some very unpleasant surprises in the future. Always ask the question “Besides the fee (or commissions) are you being compensated in any other way?”


6.  Watch out for the ‘Friend Card’. This is a particularly tough situation. You want to have advisors who You know and who know You. Sometimes the personal relationship can overshadow less than satisfactory professional performance or results. The question to ask yourself is “If Mike was not my friend would I continue to work with him?” If the answer is no then continuing to work with him means you are choosing a friend over yourself and your family. There are a number of ways to gracefully change or exit the relationship once you recognize the problem. One of my favorite clients told me he believes that you have to change advisors every five years or so to avoid complacency. This was seven years into my relationship so I had to ask why was he still engaging me. His reply? “You act like you are always applying for the position by giving me new ideas to think about. When you stop that then we’ll have to talk”. With today’s information technology it is possible to be a curator and filter of ideas to help improve the family’s overall situation.


7.  It is natural to outgrow an advisor. Again, a tough one to think about. You and your family do not look the same today as they did twenty years ago. Do any of your advisors? If so, you may be missing out on some important opportunities. In one extreme situation a client had been doing his own tax returns for thirty years. He felt they were simple enough as he was ‘only a W2’ person with some investment accounts. Problem was that today his W2 was over $2,000,000 and his investment accounts (which he also managed himself) a large multiple of that. A review of prior tax returns by a CPA found savings in excess of two years of her fees. He agreed he had outgrown his advisor! He also brought on board an investment manager for part of his money and learned the benefit of collaborative thinking.


8.  Your advisors should be collaborating with each other. Family Wealth plans are interconnected in so many ways that advisors need to do more than just talk to each other. True collaboration is not just the attorney contacting the CPA to get information needed to complete a trust. True collaboration occurs when the advisors talk about the potential impacts of various strategies on the overall family and the wealth plan. A ‘best practice’ is for there to be an ‘all advisor’ meeting once a year to talk through the family’s current situation and the direction it is heading.


9. Building a team is also part of your Legacy. By constructing a well functioning team you are making life easier for your family when you are gone. Removing the stress of dealing with a financial mess is one of the best gifts you can give your spouse and children. Even if you prefer to handle things like your investments yourself, having a portion managed by a professional sets the stage for your family in the future. Be sure to introduce the advisors to your family so they aren’t  ‘unknown entities’!


10. Your heirs need to know how to work with advisors. Involving your spouse and children (age appropriate) in meetings with advisors is a great learning opportunity. Respectful interactions and the ability to ask questions of expert advisors is best learned by observation and participation. The preservation of your family’s wealth could hinge on how well the coming generations choose and work with their own advisors.


11. Have a process for finding advisors. A referral from an existing advisor to a needed additional advisor is often the best method. Second best is a referral from a peer. When you receive such a referral ask these (or some version of) questions: 

  • What do you like about her?
  • How did you come to know her?
  • Why do you think she is the right person for me?
  • How many clients do you have in common with her?
  • What do you think is her unique ability?


12. Have a process for interviewing a prospective advisor. The need for good chemistry between you and your advisor extends way beyond technical performance. Who your advisor is as a person, the culture of the firm, the other employees you will be interacting with and how the firm connects with its clients all matter.


13. Have a process for evaluating performance. Satisfying clients is a tough, tricky business for advisors. At the beginning of the relationship and periodically (at least annually) you and your advisor should agree upon performance expectations. These will vary based on the particular role. The important item is that they are measures that make you feel comfortable and happy, however you want to define it. Some typical ones I’ve seen include: 

  • Return all calls within 24 hours
  • Present one new idea per year (this is one of my families’ expectations)
  • Provide a quarterly review and outlook for the next twelve months
  • Meet in person at least twice per year





The Rules of Engagement