There are many excellent advisors in the Family Wealth Industry. We have been honored to compete or collaborate with many of them in providing excellent services to client families. We also have received clients who previously had subpar advisors. Their estate plan revealed poorly drafted trusts and sub-par legal planning. How does a family know if they are receiving sound professional advice for their wealth? This article deals with how to evaluate an advisor, whether an attorney, financial advisor, or other professional. For a specific checklist to vet a trust and estates attorney, read our insight here.
At a Glance
■ True Professionals bring expertise and empathy.
■ Identify and Avoid Pretenders, Predators and Exploiters.
■ Stress testing can help you determine whether you are getting good advice.
Four Types of Advisors
Many clients we encounter have done some research on their own. We enjoy the opportunity to engage with clients who are invested in their estate plan; ask great questions; challenge the way entities are structured; and have thoughtful opinions on the way they want their assets distributed when they have passed away. On the other hand, being your own expert advisor can only go so far. Especially in certain fields such as estate planning, it is vital to pay for expert advice in order to properly manage your wealth. The question is, what does a good advisor look like?
Just because someone has a JD, CPA, or CFA does not mean they will be a good fit for your family to work with. There are four basic types of legal and financial professionals, based on their intent and expertise (see Figure 1). Of course, you want to work with experts who are both committed to your well-being and are extremely technically capable. These are advisors we call True Professionals. The other three types are best to avoid.
Three to Avoid
Pretenders
Pretenders truly want to do a very good job for their clients. They have the best of intentions. The problem is they lack the high-level knowledge and capabilities to do so. Pretenders want to do well, but they fall victim to the Dunning Kruger effect—i.e., they “don’t know what they don’t know.”
Regrettably, there are many Pretenders in most fields. For example, you may encounter a financial advisor who is unfamiliar with many of the advanced wealth-building and wealth-protecting solutions. Or you may encounter one who struggles to implement solutions. Be sure to find out whether an advisor has worked with many clients of similar or higher complexity to yours. If not, they many be scrambling to learn new skills as they take on your service needs.
The cost of a service does not guarantee its quality. However, True Professionals do not undervalue their work and will rarely undercharge for their services. On the other hand, a Pretender might present an attractive and relatively low-cost option. Be wary of budget shopping when dealing with important legal matters or the investment of your wealth.
Predators
Predators are criminals. Their objective is to separate you from your wealth. They seek to capitalize on the greed, naivete or goodwill of their intended victims. Predators may or may not be technically sophisticated, but they are capable of manipulating clients by building rapport and trust. Unknowingly engaging a Predator as an advisor potentially can be disastrous to your wealth (and likely your mental health). Unfortunately, it can be fairly difficult to spot Predators due to their charisma. When in doubt look at the historical results of their advice and ask for client references.
Exploiters
Exploiters are often quite technically adept and highly skilled in advanced financial strategies. The problem is that the financial and legal strategies they often turn to are technically legal but highly questionable. Thus, there is often a good possibility that the strategies they advocate will blow up on you, perhaps years after you’ve taken their advice. Put simply, Exploiters are not looking out for your best interests.
How do you avoid an Exploiter? Remember, if it seems too good to be true, it is. For example, if an advisor is guaranteeing investment returns, or presenting a plan that can “cheat the tax man” then you should turn and walk away immediately. Also be wary of someone who is extremely persuasive, or whose advice contradicts that of every other professional with whom you consult.
Figure 2 summarizes the key differences among the four types of professionals. Without question, you want to work with a True Professional. The issue then becomes how to find one.
True Professionals
There are a few ways to help give you greater confidence that you are working with a consummate professional.
The way that most ultra-high-net-worth families find exceptional advisors is via introductions from other trusted professionals they work with. For example, if you need a registered investment advisor, your accountant may know trusted experts he or she can introduce you to. Or if you have an estate tax issue for which life insurance is the best solution, your trusts and estates lawyer likely knows leading insurance agents.
Getting referrals from an existing trusted advisor is an effective way to find True Professionals. When accountants or lawyers refer you to a financial advisor, they are putting their reputation and professional judgment on the line. This is not something they are likely to do unless they feel the financial advisor is a True Professional.
Another consideration is whether the financial advisor is a thought leader. A thought leader is not just someone with a large following on social media (though that is not bad in and of itself), but someone who is a recognized member of their professional networks, is regarded well by other professionals, and has published articles or even books in their field. Other professionals, successful business owners, and even competitors view him or her as a leading authority. By identifying true thought leaders, you increase the likelihood of working with some of the most qualified professionals.
If You’re Not Sure
We find that many wealthy individuals and families recognize when something feels wrong—or at least, not quite right—about their professional advisors. For example, entrepreneurs with years of experience building and growing a financially strong company are often able to spot when they may not be getting enough financial value, or when they may be dealing with someone whose advice could get them into trouble down the road.
One of the best ways to deal with this kind of situation is to conduct a stress test. This is a process of critically evaluating key aspects of your current financial situation and how your advisor(s) manages your assets. It may also involve carefully assessing a particular strategy or product you are considering and “putting it through its paces” before deciding whether to move ahead. Stress testing gives you the opportunity to correct mistakes or use solutions and products that can do a lot more to help you accomplish your goals.
Summary
In the complex world of family wealth management, ensuring you receive sound professional advice is of paramount importance. While the Family Wealth Industry boasts many exceptional advisors, there are those who fail to provide optimal services, such as inadequately drafted trusts or insufficient legal planning. There are four types of advisors based on their intent and expertise: True Professionals, Pretenders, Predators, and Exploiters. True Professionals are knowledgeable and genuinely care about their clients’ well-being. To ensure a partnership with a True Professional, it’s recommended to seek referrals from trusted existing advisors or identify those recognized as thought leaders in their fields. If doubts arise about the competence or integrity of an advisor, conduct a stress test to evaluate key aspects of one’s current financial situation, and how well services are being provided.