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Suze Orman Money Matters

Suze Orman, Money Matters

What to Look for in a Financial Adviser

by Suze Orman

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Posted on Friday, July 27, 2007, 12:00AM

Whenever anyone tells me about a financial problem (and this happens several times a day), they invariably get around to what led them to make a certain investment or financial choice in the first place.

I tend to hear one of the following:

• My mother/father/uncle/cousin/aunt told me it was a smart move.

• It's what everyone was talking about at the office.

• It's what my mortgage lender/financial adviser/broker/insurance agent told me to do.

I then ask them, "What did you think about that choice when you made it -- did you feel confident that it was the best thing for you?" Typically, this gets a blank, guilty-looking stare. Because often, the truth is that they didn't give it much thought at all. Instead, they just relied on the advice of someone else.

Get Involved with Your Money

That's their real mistake. Not the actual investment or the choice they made, but the fact that they didn't take full responsibility for figuring out for themselves if the advice was the right advice.

Don't worry, this isn't going to be a blanket condemnation of anyone doling out personal finance advice -- there are plenty of people who do a terrific job of steering people in the right direction. But the real issue is that you have to know enough, and care enough, to put in the time to make sure that the advice you get is in fact best for you. I've said this before: No one will ever care more about your money than you. So that means getting involved, and staying involved, with your money.

Still, I know from experience that plenty of people will never feel completely comfortable handling all their money decisions without some outside help. That's fine, as long as they stick with people who are qualified to do the best job.

Seem obvious? Then why is it that so many people end up losing money by following bad advice?

The Three Es

If you want professional help dealing with your finances, you need to know how to interview potential advisers. Most important, you need to make sure you put any potential hire through the Three E test: Experience, Expenses, and Execution:

Experience: Ideally, an investment adviser should have 10 years of experience. There's a lot to be gained from someone with a lot of experience, especially given that the past 10 years have included a dramatic boom and an equally dramatic bust.

That's a great opportunity when vetting an adviser: Ask them how they did from 1998 to 2000 and then from 2000 to 2003. It would be great if a potential adviser pulled out some client statements from the 2000-2003 downturn -- with all personal information redacted -- so you can see for yourself how the adviser had his or her clients positioned.

Expenses: The first expense you need to know about is how the adviser is compensated. You shouldn't have to ask; a quality adviser will explain his or her fee structure up front.

Personally, I hate the commission setup -- there's just way too much room for a conflict of interest when someone needs to sell you products or trade stocks and funds in your account to make a living. I much prefer when payment is made as a set fee for consulting work (on an hourly basis, say) or, if someone will be managing your money, you agree to a fee that's a percentage of your assets (typically 1 percent or so).

The other crucial expense conversation you need to have revolves around the types of investments the adviser uses. If you're paying 1 percent for someone to manage your money and then another 1.5 percent or more in a mutual fund's expense ratio, that's a combined 2.5 to 3 percent in expenses that'll be deducted from your gross returns.

In a market environment where 8 percent returns are seen as bullish, you're potentially losing 30 percent or so of your returns to cover fees. If you're paying someone 1 percent or more to manage your money, it should be invested in individual stocks. As for mutual funds, there's no reason not to handle them yourself -- it's not too hard to build a diversified long-term portfolio with just a few index funds or ETFs.

That said, if you're more comfortable working with an adviser, at least make sure they favor the lowest-cost funds. If you find out the adviser puts clients in funds with the letter B in the name -- also known as "B shares" -- that's not a good sign. B-share funds have very high expense ratios because part of the fee you pay is in fact a commission for the adviser/broker who sells you that fund. If you're already paying an adviser 1 percent for your agreed fee, why agree to have them make more money off you by selling you B shares? That's an adviser who's not looking out for you.

Execution: If you're hiring someone to manage your money, be very careful: No reputable adviser will ever ask you to write a check directly to him or her. Your money should be directly deposited at the firm -- a brokerage or fund company -- where your money will be invested.

If practical, it's useful to visit an adviser at his or her office, where you can get a good sense of the operation in person. You obviously want to see an organized and professionally run office.

When you meet with a potential adviser, pay close attention to the questions they ask. This can be hugely telling. For example, if you're married or living with someone, and only one of you is present at the meeting with the adviser, the adviser should insist that you reschedule for a time when both of you can be present. If there are joint investments and joint financial decisions to be made, a reputable adviser will insist on interviewing both parties; that's the only way to devise a financial plan that works for both of you.

Even if you think all you need help with is investing, be wary of any adviser who's willing to talk to you just about investing. A good adviser will start by giving you a thorough "workup" to make sure he or she understands your entire financial situation.

Staying Involved

Once you find an adviser you want to work with, please keep my earlier advice in mind: At the end of the day, you have everything riding on your money, so stay involved with it.

That means carefully reviewing your statements and making sure your adviser remains focused on what's best for you.

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99 Comments

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  • Yahoo! Finance User - Tuesday, August 14, 2007, 6:44PM ET  Report Abuse

    • Overall: 1/5

    Suze is fluffer as a financial pro. Rarely does the media put a true financial pro in the article. Suze does have the real education to speak on hard financial issues. She talks on IRAs, mutual funds and credit cards. I'm starting my career in tax accounting at D&T and I've met some of the private wealth advisors and the guys know their business. I received 2 BAs in accounting and economics with a finance minor and D&T will help me pay for grad school. Suze and "Rich Dad/Poor dad" Rob K. are Amway salespeople. The know know just enough financial information to sell books and TV air time.

  • Random Dude619or858 - Tuesday, August 14, 2007, 6:38PM ET  Report Abuse

    • Overall: 1/5

    Baaaaad advice. Run for your life from her myopic obsession costs. Remeber, there IS a difference between Nordtrom or Bloomingdales and the 99 cent store.

  • Cara - Tuesday, August 14, 2007, 6:37PM ET  Report Abuse

    • Overall: 1/5

    The advice is broad (no pun intended) but not very deep. I understand that she is writing to an audience which is typically not advanced however, if everyone followed her advice, investment portfolios would be homogonized.. Suze needs to keep in mind that people have differing time horizons, risk tolerences etc.

  • Szablis - Tuesday, August 14, 2007, 6:35PM ET  Report Abuse

    • Overall: 2/5

    All Suze has to do is doll out advice - good or bad no one will ever know because she isn't held accountable for individual results. People will still buy her stuff because they "saw it on TV". She makes some decent points on finding a good advisor. However, some of her logic is seriously flawed (as usual).

  • Jason - Tuesday, August 14, 2007, 6:27PM ET  Report Abuse

    • Overall: 2/5

    While some of the comments have merit, keep in mind that Suze gives free advice to broke people. If you want what the wealthy in america have, do what they do... ie hire a good advisor (that you have to pay for, usually 1 - 2%) and start building your wealth. A good advisor will keep you invested over time even when your emotions say to get out of the market. Keep in mind that the name of the game is "time in the market", not "market timing." Getting advice from friends/family/co-workers/talkshow journalists is a far cry from what the truly wealthy in this country do. Generally speaking, unless you have actually seen the official statements or audited financials for someone, you have no idea of whether or not they truly are well-off or just know how to run their mouth.

  • Robert - Tuesday, August 14, 2007, 6:15PM ET  Report Abuse

    • Overall: 1/5

    While the whole concept of being involved with your money is great, and honoring experience is generally ok, the rest is actually damaging because the generalizations are far too broad and could cause someone to make bad decisions. Particularly when you consider that the feel good nature of this column could make people with low levels of understanding believe that this is enough. Maybe the larger issue is the whole difficulty in trust for people who have made a career in the insurance business. It is very important and yet so troubling. Find someone who runs the numbers for you and explains things in a way that you can understand and don't stop until your satisfied. Your money is that important.

  • john - Tuesday, August 14, 2007, 6:13PM ET  Report Abuse

    • Overall: 1/5

    journalists and people who write the "do it yourself" books rarely take into account that when the going gets tough individual investor's rarely use logic and almost alway's let emotion's rule the day. in other word's, they zig when they should zag. She is correct that people should be involved and that they should not tread blindly with an advisor, but that is true in any situation, not just investing.

  • AP - Tuesday, August 14, 2007, 5:53PM ET  Report Abuse

    • Overall: 1/5

    Horrible advise. Suze sells Suze.

  • Brett - Tuesday, August 14, 2007, 1:29PM ET  Report Abuse

    • Overall: 1/5

    As a financial adviser, I do feel that some of the things that Suze says does have merit. It is very important for investors to know what their money is doing. Personally, my job is not only to guide my clients but to also educate them. A financial plan must be understood by all parties and be in the best interest of the client. That said, I always tell my clients that they have the veto power on any recommendation, and that the burden is on me to prove to them the merits of my recommendation. In that respect, Suze is correct. I do feel that she must stop pushing ETF's the way she does. Do they have a place in ones portfolio? Yes. Are they better than all mutual funds? Absolutely not. Look at any 10 yr period and make your own assumptions. For instance, when a company flounders (Enron, Worldcom) they saty within an index until they no longer meet the necessary qualifications (i.e. S&P 500: the 500 largest companies). As where mutual fund companies have the ability to pick and choose what they invest in at anytime. In closing, fees are only an issue if they create no added value. If you have the time, and knowledge you can always invest on your own, and don't let anyone tell you otherwise. But when mistakes are made and/or you have questions, you have no one but yourself. So when looking for a brokerage, or an FA, pay attention to the rankings (JD Power, Smart Money, Registered Rep, etc.) and pick the one that best fits you. After all, its your money, and you ALWAYS have the final say.

  • Yahoo! Finance User - Tuesday, August 14, 2007, 12:06PM ET  Report Abuse

    • Overall: 1/5

    Suze again talks about Financial Professionals from a journalist point of view. She does NOT mention anything about education, designations or licensing, 3 key criteria when selecting an Advisor. Most likely she avoids these topics since I find no evidence in her bio of having any licenses or professional financial designations...makes sense, she sells books & video & articles, not advice.

  • Ryan - Monday, August 13, 2007, 2:18PM ET  Report Abuse

    • Overall: 3/5

    Overall, sound advice. I am a financial advisor and have been for 10 years. I rarely agree with Suze due to her chronic hatred of financial advisors (funny how she's smarter than every one of us, just ask her) but she is right on one thing. People HAVE to be involved in their money and need to understand what they are going into. Sure, there are dodgy and cheating FA's out there just as their are dodgy and cheating doctors, lawyers, AUTHORS, etc. However, there are also very solid FA's, doctors, lawyers, authors, etc. Those of us who have been in the business as long as I have must be doing something right. Take my advice as it does fall somewhat in line with Suze. Interview several FA's before you work with them. Many will steer you into something before even knowing your overall financial situation. As she said above, watch the questions they ask you and make sure that they have an idea of your ENTIRE financial picture before they give you advice.

  • WilliamF - Monday, August 13, 2007, 10:30AM ET  Report Abuse

    • Overall: 5/5

    Overall Susie, I think you hit the nail on the head. I just transfered my money,( IRA) to another firm. This broker i had was to look out for my best of intrest, but apperantley wasn't. He put all or most into B shares, and it did nothing but yo-yo up and down since 1999. To me now heading for 66 years of age was a waste of money and time, which i will never recover. I should have never changed and stayed the course all by myself. Now i'm back to square one, and will do as i have done in the past, which was manage it by myself. Now i have a better control of my money, not letting someone like a broker manage my mutual funds. Susie, i only wish people would empower themself to take the bull by the horns, instead of someone else. In closing, i only hope i can recover what i lost! Thank god for people like yourself.

  • Logan - Sunday, August 12, 2007, 4:17PM ET  Report Abuse

    • Overall: 4/5

    For all of those people that made stupid comments about Suze needs to grow up. She was a bad advisor I don’t think that she will be a New York Best time Seller, have her own TV Show. Face it she worked hard for it. Also her advice have helped me to point out the advisor that don’t care and only look for to make a sell. Grow up people and stop being jealous of her.

  • Fay - Sunday, August 12, 2007, 2:26PM ET  Report Abuse

    • Overall: 3/5

    I agree with getting involved with our money. I checked out the advise of another yahoo user instead of my financial advisor. My financial advisor had never heard of the new Money Merge Account that another yahoo person had recommended so I checked in to it myself and Boy am I glad I did. The MMA program will knock off about 10 years from our mortgage and will save us over $100,000 in interest, not to mention our monthly savings by using the program. We filled out the analysis on the website the other user mentioned www.u1stfinancial.net/johnfechik and the agent called us to tell us we prequalified- they said you have to have at least a 620 FICO score. I will still listen to some of our financial advisors advice along with other pertintent people in our lives, like our mortgage broker we have used for years, our accountant and other people that have actually done what they tell you to do! The lesson is to do your own homework, don't always rely on others to tell you what is good for you- only you can decide that.

  • Frank - Monday, August 6, 2007, 1:05AM ET  Report Abuse

    • Overall: 1/5

    None

  • John - Sunday, August 5, 2007, 9:29PM ET  Report Abuse

    • Overall: 2/5

    Not bad advice- but the big thing she missed about financial advisors is that most of them are a little closed minded. We asked ours what he thought about the new Money Merge Acccount. Instead of investigating what it is, he just said it wasn't a good idea. Boy did that financial advisor miss out & THANK GOOD NESS WE DIDN'T LISTEN TO OUR FINANCIAL ADVISOR! We went ahead and got on the Money Merge Account anyway & it has been the best thing we could have done. It is an interest cancellation program for paying your mortgage off in 1/2 to 1/3 the usual time. It is basically by restructuring the way you do your banking. We went to this website www.u1stfinancial.net/johnfechik and filled out the MMA account analysis to see if we qualified- they told us you need a minimum of 620 credit score. We had an agent contact us to go over it. We were able to use the equity in our house and pay off all our debts and help our cashflow & we will have our 30 year mortgage paid off in 13 years. If a financial advisor says that is not good- you don't have any use for that type of advice! In fact, I found out that there ARE a lot of financial advisors that recommend the MMA program. Those are the smart ones!

  • Yahoo! Finance User - Sunday, August 5, 2007, 9:12PM ET  Report Abuse

    • Overall: 1/5

    Gimme a break. I wonder if she even bothers to write this superficial stuff. Her comments are almost as bad as the "primerica - a division of Citigroup" comment. What a waste.

  • Gary - Sunday, August 5, 2007, 12:12AM ET  Report Abuse

    • Overall: 2/5

    I don't think commission based advice is always bad, since that weeds out the advisors that are not serious anyway.

  • Yahoo! Finance User - Saturday, August 4, 2007, 2:48PM ET  Report Abuse

    • Overall: 1/5

    Suzie Orrmad Sucks!!!

  • eric - Wednesday, August 1, 2007, 9:47AM ET  Report Abuse

    • Overall: 1/5

    Suze is not correct about many things in this article. For instance, everyone has heard of American Funds. Did you ever run the numbers and find out that if you put in under 25k, 25k and above you hit a breakpoint, that B shares will yield you a higher return than A shares over 10 years. Do the math, it doesn't lie. I agree with Suze on the 1% wrap accts, they are terrible for mutual funds. The suggestion on index funds is terrible, why do what the index does when you can do better for less risk if you are diversified properly. Suze is also incorrect about needing 10 years of experience. Yes it is good to go through different market swings. However, 10 yrs ago we didn't have the same technology, we didn't know the same facts, we didn't know a lot of things. People jumped on the tech bubble, then they felt it burst. When it is all said and done, you need to look for a couple things. Am I diversified for my proper risk level, without a financial advisor, how do you know? Fees are important and Financial Advisors look after the expenses. Best advice is stop listening to somebody who has a show on tv that suggests different stocks every show. If all your friends jump off the bridge are you going to jump too? Think about it

  • Yahoo! Finance User - Tuesday, July 31, 2007, 4:22PM ET  Report Abuse

    • Overall: 2/5

    Some of this I agree with, a lot of this I don't. I admire a vast majority of Suze's work, but this strikes a wrong tone with me on a few levels. First, where does an arbitrary 10-year experience requirement come from for a financial advisor to be seen as competant in the eyes of this article? As a young financial advisor myself, I take serious offense to this. If everyone held this belief, how would any young, fresh financial minds like myself ever build a practice? I've built my practice on dedication to my clients best interests and a dedication to my job, constantly learning and constantly tending to my clients needs, not by touting how many years of actual "experience" I have. I'd argue that I run circles around some more "tenured" advisors with hard work and a dedication to life-long learning, as would many young advisors in the industry. I thought I was a good money manager too, until I finished a finance degree, found a career in the industry, and found out just how many options there are out there. To put it bluntly, there are too many options for a family man or woman working 60 hours a week with three kids to devote the time and dedication necessary to choose what truly fits best for their unique situation. To say that working with mutual funds is nothing more that "a few index funds or ETFs" and "theres no reason you can't do it yourself" is far too much of a blanket statement. If that's the case, why are there any individual mutual funds out there? Or sector funds? Why do they even exist if no one needs them or if they don't fit anyone's personal situation. Every situation is different. We as professional advisors are here to help people make sense of it all and put a plan in place that addresses their specific needs. Come on Suze, you're better than this article!

  • LisaM - Tuesday, July 31, 2007, 2:02PM ET  Report Abuse

    • Overall: 3/5

    I suppose if you don't feel confident or don't want to take the time to actively manage your own investments, then a financial adviser is a good thing. By active management I mean evaluating your financial situation, developing a financial plan, choosing what and how to invest, asset allocation, paying down debt, planning for future expenses (retirement, college, a new home, a new car, an engagement ring--anything big), setting future financial goals, tax planning--the works. You can do it all yourself if you like. You can do some of it yourself and turn to a financial adviser for the rest. You can have an adviser do it all for you. Suze's right--you need to find a good financial adviser if you are going to use one. You may or may not need to pay for the service: some 401(k), 403(b) and 457 providers do individual consultations and group seminars for free. The quality of the information varies widely. Your financial wizard relative may be the best (and free) choice. Or that relative could be disastrous. I use a mix of advice I find in financial magazines like Money, Kiplinger's and Smart Money, advice I find on the web at sites like Yahoo! Finance, MarketWatch, Bankrate and MSN Money, information I get from the daily news and the Wall Street Journal, flyers from my retirement and investment plan accounts...AND a healthy dollop of Regency romance novels, inspiration from my late grandmother and my gut. It's worked for me so far.

  • andrew - Tuesday, July 31, 2007, 9:45AM ET  Report Abuse

    • Overall: 3/5

    I agree with most of this. The thing I don't understand as an advisor myself is why are people so skeptical about advisors. It's just like any other profession, there are good ones and bad ones. Suze always says to manage your money yourself, and only use an advisor if absolutely necessary. I often find myself saving my clients from themselves, they take way to much risk and do not investigate their ideas.Why not leave it to a pro, did you diagnose your own cancer? Point is, it's our job and we care very much about our clients and their goals, hopes, and dreams. We are here to help, not to hinder.

  • kim b - Tuesday, July 31, 2007, 5:55AM ET  Report Abuse

    • Overall: 2/5

    Most middle-income families cannot afford to give a financial advisor hundreds to thousands of dollars just to find out they are in financial peril. Primerica, a member of Citigroup, is the only financial company that will offer a complimentary financial needs analysis. If you are in need of a financial roadmap, there is no better place to go.

  • Cody - Monday, July 30, 2007, 11:16PM ET  Report Abuse

    • Overall: 1/5

    You forgot to mention that savings in America is at an all time low. The average young adult needs to be encouraged to save, which is one of the largest jobs of an advisor. A cheap “K-Mart” fund will save you in expenses, but that doesn’t help all of the do-it-yourselfers who just sold off all of their investments in a panic. Oh, and by the way: After an advisor has been in the business for 10 years, try to get him to call you back and see how your $4000 Roth is doing. That should work out well for you. It is really hard to take distributions from your retirement plan when your advisor, with all that experience, is sitting in your seat on the beach in Florida. Get a referral to a successful advisor with 3-5 years of experience.

  • Yahoo! Finance User - Monday, July 30, 2007, 10:54PM ET  Report Abuse

    • Overall: 1/5

    please stop giving generic advice! Not everybody has the time to learn how to fix a broken motor; and just because you've watched people fix it a couple of times doesn't mean you should try it yourself. How many times have we heard people pulling out of the market because it has dropped beyond expectation or buying mutual funds with every dollar they have because the market is going up? Go find yourself an eithical CFP that will do the right thing for you long term.

  • Ferrans - Monday, July 30, 2007, 10:01PM ET  Report Abuse

    • Overall: 2/5

    Suze forgot one E: Ethics. My dad had a financial advisor who churned him from one investment to another to drive up his commissions. He was able to get to this point by simultaneously building up trust and convincing my dad that investments were very hard to understand, and did this very carefully over 15 years. Your best defense is to learn as much as possible about investing, and to go with a fee-based advisor when necessary. It's also a good idea to avoid an advisor who works alone -- large companies tend to have good procedures in place against fraud.

  • Hegar - Monday, July 30, 2007, 9:31PM ET  Report Abuse

    • Overall: 1/5

    Ms. Orman gives general advice about everything financial. I hope the shallow advice doesn't reflect the person. Come'on Suze step-up your game... (or Yahoo! will)

  • Yahoo! Finance User - Monday, July 30, 2007, 8:43PM ET  Report Abuse

    • Overall: 1/5

    I seem to remember this article from somewhere. Is this not a re-write of an article where you stated clients should ask advisors to guarantee 5% over CD rates. Not very CFP friendly. Again, what is your basis for 10 years of experience? It's not years of experience but the quality of an advisor. This is measured by designations, certifications, and common sense. Let's not use artifical guidelines to discrimate against the NexGeneration of financial advisors.

  • Yahoo Financial Page User - Monday, July 30, 2007, 8:17PM ET  Report Abuse

    • Overall: 1/5

    Like any other profession you usually get what you pay for is my experience.

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