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The Rules of Engagement: Finding, Creating and Maintaining Great Advisory Relationships (May 14, 2015)

Tim’s Rules of Engagement 

Engaging an advisor, whatever discipline, is a skill. Maintaining a successful relationship with your advisors is an even greater skill. I have seen great advisor relationships, others that were not so good and still others that deteriorated and no one really notices. The following rules have come as a result of observing my own client relationships as well as the relationships of other advisors. Building and maintaining successful relationships with advisors is important, so I hope these rules of engagement help.


  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, and is often late for meetings or phone calls, then you have to ask: Does his or her prestige excuse it? Your CPA, attorney, investment manager, and insurance professional all work for you, and as such you are entitled to expect certain standards.

John Broderick, a good friend of mine and 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 strong and effective.


  1. 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 else using those firms was getting great returns. These cases illustrate the power of advisor prestige and the desire to be in with the in crowd. Before hiring an advisor, make sure that the advisor meets all the criteria on your list of requirements. I share such a list with you momentarily.


  1. Advisors should be able to communicate with you.

This comes in two forms: First, you should understand why you (not just all of your advisor’s clients) are implementing a particular strategy—be it tax, insurance, investment, or otherwise. Second, the best advisors are proactive in advising. This does not mean that your advisor is constantly selling or changing your plan. It also does not mean that she sends out weekly economic newsletters. It means that your advisor creates in you the feeling that she is thinking about you and your situation. In today’s world, a good advisor acts like a curator of information, ideas, and concepts.

This shows up when your updates have the flavor of: “Here is an explanation of what is happening, what it means to you, and what we might want to have a conversation about.”


  1. There are no free services.

You are paying for everything an advisor does for you. Depending on economic circumstances, having bundled services is not necessarily a problem. However, for an affluent family, maintaining a certain level of checks and balances among service providers is important. For example, if your investment manager provides overall wealth-management planning as part of his or her investment management fees, you are working with an advisor who has 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 his or her performance in that role, and the wealth planner/strategist should be evaluated on his or her separate performance and the value brought to you.


  1. Understand how your advisor is compensated.

Again, a two-part solution is required: First, you should never wonder how your advisor is getting paid for all the work he or she provides on your behalf. In many commission-driven fields, this is the grayest of areas. Planning and advice should be separated 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, and the like can sometimes sway a recommendation. The same is true for referral fees for bringing in another advisor. None of these are bad in and of themselves, but transparency around compensation avoids some unpleasant surprises in the future. The simple questions to ask are:

  • “How are you compensated?”
  • This question should be followed with: “Are there any non-cash compensations from any of the work you are doing for us?”

Do not hesitate to ask traditional by-the-hour advisors (CPA or attorney for example) about flat or project fees. I have found these agreements to be more prevalent in the last few years.


  1. Beware of the friend card.

This is a particularly tough situation. You want to have advisors you know and who know you. But sometimes a personal relationship can overshadow less-than-satisfactory professional performance or results. The question to ask yourself is this: “If Gary were 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.

Once you recognize the problem, a number of strategies will allow you to gracefully change or exit the relationship. One of my favorite clients told me he believes that a person should 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 doing that, then we will 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.


  1. It is natural to outgrow an advisor.

Again, this is 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.

“I’m only a W2 person with some investment accounts,” he told me. The problem was that his W2 was over $2 million, and his investment accounts (which he also managed himself) were 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 (himself)! He also brought on board an investment manager for part of his money and learned the benefit of collaborative thinking.


  1. 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 one another. 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 an all-advisor meeting to occur once a year so that your advisors can talk through the family’s current situation and the direction it is heading.


  1. Build a team that 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 professional manage a portion of your finances sets the stage for your family in the future.

Be sure to introduce the advisors to your family so they are not unknown entities!


  1. Your heirs need to know how to work with advisors.

Involving your spouse and age-appropriate children in meetings with advisors is a great learning opportunity. Respectful interactions and the ability to ask questions of expert advisors are 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.


  1. Have a process for finding advisors.

The best method for finding advisors is often by asking existing advisors for referrals. Second best is a referral from a peer. When you receive such a referral, ask some version of these questions:

√ “What do you like about the advisor?”

√  “How did you come to know the advisor?”

√  “Why do you think this advisor is the right person for me?”

√  “How many clients do you have in common with this advisor?”

√  “What do you think is the advisor’s unique ability?”


  1. Have a process for interviewing a prospective advisor.

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


  1. Have a process for evaluating performance.

Satisfying clients is a tough, tricky business for advisors. At the beginning of the relationship and periodically thereafter—at least annually—you and your advisor should agree on performance expectations. These will vary based on the particular role, but one way or another, they must be measures that make you feel comfortable and happy, however you want to define them. Some typical ones I have seen include the following performance expectations:

  1. Return all calls within 24 hours,
  2. Present one new idea per year,
  3. Provide a quarterly review and outlook for the next twelve months,
  4. Meet in person at least twice per year, and
  5. Attend an “all-advisor” meeting once every eighteen months.


  1. Think about the Trust Equation

I have an old, yellowed, and dog-earned copy of The Trusted Advisor by David Maister, Charles H. Green, and Robert M. Galford. Scott Fithian referred me to this book for one reason: The Trust Equation. The entire book became a godsend for me, but The Trust Equation in particular is spectacular because it draws attention to your advisors’ self-interest. Credibility, reliability, and intimacy can be overshadowed when an advisor displays excessive self-orientation. Think about your advisor relationships. How much self-orientation do your advisors have compared to their interest in you?


  1. Put it in writing.

Last, to avoid any confusion, your advisor should give you a memo of understanding on the scope of the work and the compensation structure. This will help reduce surprises for both you and your advisors.



The Rules of Engagement: Finding, Creating and Maintaining Great Advisory Relationships (May 14, 2015)