How to identify an integrated financial advisor in a noisy world

How to identify an integrated financial advisor in a noisy world

Many professions have a clear licensing framework. For example, accountants have the CPA (Certified Public Accountant) designation, lawyers pass the bar exam, and doctors must go to medical school, and then complete a licensing exam and residency before becoming full doctors. For financial advisors, the education and licensing framework is not nearly as clear-cut. On the investment side, there are portfolio managers, who have either the CFA (Chartered Financial Analyst) or CIM (Chartered Investment Manager) designations and are registered with the provincial securities commissions or IIROC (Investment Industry Regulatory Organization of Canada). On the financial planning side, there is the CFP designation (Certified Financial Planner), however, many who have taken and passed a single course can also market themselves as a financial planner or financial advisor under the current regulatory regime (even without a CFP). All this adds up to a confusing marketplace for people to navigate when they are seeking financial advice.

So, if professionals are doing different jobs and marketing themselves as financial advisors, and the regulatory framework doesn’t provide clarity as to what the title “financial advisor” means, what is the average consumer to do? Wouldn’t it be helpful if there were a few simple questions you could ask your prospective “financial advisor” to see if that title truly reflects what they do? Well, that’s what the remainder of this article is about. Below I have listed four big-picture questions that you can ask to help determine if the person you’re talking to is a truly integrated financial advisor, portfolio manager, investment salesperson, or something else entirely.

1.      How many clients do you have?

The business of providing objective, holistic, and integrated financial advice for high-net-worth families is complex and in-depth work. It’s not the type of thing that one financial advisor can provide for 400 people. For example, I work with 22 client families on all aspects of their financial affairs and that work keeps me very busy. At Northwood, we have approximately 100 client families across the country and 17 client-facing staff (ranging from Associates all the way up to our CEO)

If you ask someone marketing themselves as a financial advisor how many clients they have and the answer comes back at something like 400, you’re probably dealing with a portfolio manager or an investment salesperson. We know there are roughly 250 workdays per year. Knock off 15 from this number to reflect three weeks’ vacation, and you’re left with 235 days to serve 400 clients. If all clients were treated equally (which is not usually the case), that would mean each client would get that person’s attention for approximately ½ a day per calendar year.

Now if you bring this math up with this hypothetical financial advisor with 400 clients, you’ll probably hear that they have a whole team working underneath them and that everyone works together to serve each client. In that case, you should clarify who will be managing you as a client, and how often you’ll see or hear from that person. It’s important to understand the anticipated service levels of the advisor you will work with.

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2.       Will you report on all of my investments or only the ones that I have with you?

This is probably the easiest way to quickly determine if you’re dealing with an integrated financial advisor or an investment salesperson. A true financial advisor would want to understand your whole financial picture, and how the portion of your portfolio that they’re managing fits into your overall portfolio, as opposed to only caring about the investments that they manage directly. In order to provide fulsome and thoughtful financial advice, your financial advisor needs to understand all the places you have investments, and how those investments have been performing over time. If they aren’t interested in the details of all of your investments (not just the ones with them) and aren’t willing to provide consolidated reporting on your whole portfolio, they’re not really serving as an integrated financial advisor.

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3.       Will your regular reporting include my family’s balance sheet (i.e. assets and liabilities)?

This is an extension of the second question on reporting on both internal and external investments. Just as a public company’s quarterly reporting has to include a corporate balance sheet listing all of the company’s assets and liabilities, the quarterly reporting that you receive from your financial advisor should include a family balance sheet that lists all of your family’s assets and liabilities and the resulting total net worth of the family.

This reporting should not simply show three numbers (Total Assets, Total Liabilities, and Total Net Worth) either. At Northwood, each quarter our client reporting package includes what we call a Net Worth Statement. This document has a column for each person and entity (i.e. family trust, holdco, etc.) in your family, and separates investment assets, from non-investment assets like personal use real estate. It also deducts all liabilities (i.e. mortgages and lines of credit) to get to your family’s net worth and then adds on the current values of all life insurance policies to get to your family’s total estate value. Having all of this information available regularly allows for effective decision-making.

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4.       How will you work with the other professional advisors in my life (i.e. accountants, lawyers, insurance brokers, etc.)?

At Northwood, I often think the most important role we play for clients is the quarterback who coordinates the various advisors in their life and makes sure everyone is rowing in the same direction. Managing investments is one important aspect of being a financial advisor, but I believe a true financial advisor has a job that is much broader than managing the client’s investment portfolio.

If your prospective financial advisor doesn’t express an interest in meeting and working with your existing accountant and lawyer (and other investment managers), or helping you find new professional advisors if you need them, they’re not providing you with integrated financial advice.^[1] Your family’s financial affairs encompass much more than your investment portfolio, and your financial advisor should also be involved in your decision-making around tax planning, estate planning, and everything else that has a dollar sign associated with it.

The arrival of October and the end of warm weather can often be a trigger for people to sit down and take a hard look at their financial affairs and the team of advisors that they’ve chosen to work with. I hope that this article and the questions I’ve outlined in it can be helpful to a few people as they go through this process.

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^[1] If you’re interested in diving deeper into the concept of integrated advice, our CEO Tom McCullough recently wrote an article titled ‘The Rise of The Integrated Advisor’ for the 25^th anniversary edition of the Journal of Wealth Management. The full article is available at the following link on our website: https://www.northwoodfamilyoffice.com/resources/white-papers