Our Role as an Advisor: Getting Started

A number of months ago, we met with another professional at his office, to discuss our business and his. During the course of the meeting, he asked what differentiated our practice from other advisors. We discussed a number of items, but we knew the best way would be for him to really experience our services himself.

So, after a number of discussions, he and his wife met with us, at our office. We talked about their past investment experiences, their lack of a financial plan ("I just pick stocks and have mostly not done too well"), how they now really want to get serious about their investments and feel they need professional advice. We asked them questions. Like many clients, their desire was in line with our fundamental goal, to have a greater sense of financial comfort and security, as well as clarity.

During our discussion, they asked us questions, which we answered in plain English. I drew some pictures and sketches on a legal pad, to explain our investment philosophy. Their conclusion: our philosophy is logical and makes sense. They liked that we are globally diversified, and realized that their current portfolio had almost no exposure to international stocks at all. We feel that international investments should have a significant place for almost all investors.

We recommended that we evaluate their current investments, which we call a "portfolio review." The emphasis of this analysis is not on performance, it is on how one's investments are allocated. We base our investment decisions on academic research, which teaches us that investment returns are based mostly on investment asset allocation, not individual stock picking. We will present this information in a clear, easily understood manner.

As part of the discussion, we all came to the conclusion that this couple had "made it" financially. They had accumulated adequate assets. However, they were risking this comfort by allocating so much of their assets to stocks (say 60- 70%). This was an uncessary risk for them. In our role as advisor, we recommended that a much more conservative asset allocation made more sense, given their age and financial assets. The primary goal should now be to preserve the majority of their assets, to provide them the comfort and security they desire.

We then talked about the allocation to fixed income, the assets I refer to as "the foundation." We talked about why it made more sense for their fixed income investments to be in individual bonds or CDs, to be generally held to maturity, and not in bond funds (as I've blogged about a number of times). For this, and most others we meet with, this advice is new (and quite welcome). They did not realize that they could be at great financial risk, if interest rates eventually rise, with their bond funds.

Finally, we talked about another potential investment they are considering, an annuity product another person had recommended to them. We are analyzing this product, with very surprising results. What the couple understood to be the great advantage of the annuity product (the terrific guaranteed return), did not turn out to be what they thought. The guaranteed return only represented a small part of the total investment, and only if certain conditions were met. The annuity had very high fees, withdraw restrictions and surrender charges. Investments that we recommend have none of these. We are fee-only advisors, and our fees are clearly explained.

This is a typical example of how we begin to work with a new client. We meet with them a number of times. We want our clients to understand how we work, how we invest, what our philosophy is. We want them to be very comfortable with us. We want them to understand that we clearly understand their needs. To realize that we will utilize our extensive financial experience as CPAs to assist them with their investments and financial planning, as well as their tax and estate planning, along with their other advisors.