Money Whys

By Martha M. Hamilton
Sunday, November 12, 2006

What does money mean to you?

I've been thinking about what it means to me as I try to figure out the best way to find the right financial adviser. And it's one of the things a financial planner should ask every prospective client, according to a book called "Questions Great Financial Advisors Ask . . . and Investors Need to Know" (Kaplan Publishing) by Alan Parisse and David Richman.

In describing what a financial adviser needs to know about a client, Parisse and Richman also raise issues that anyone looking for a financial adviser would do well to ponder before beginning the search. One is our emotional relationship with money.

For most of us, that relationship goes back a long way. I remember growing up in Texas with the sensation of never having enough. My parents took in boarders when I was very young. With five kids, we wore a lot of hand-me-downs (except for the one boy), and at supper -- after enough was set aside for my daddy's lunch the next day -- there was usually only enough for one of us to have a second helping. I raced my brother through the meal for it.

That probably made me pretty conservative about money in some ways. For instance, if I'm going to spend money on a financial planner, I need to be sure before I begin that my money will be well spent. But it also makes me more of a spender in other ways. When I have guests for a meal, I almost always buy and cook way too much.

Parisse and Richman argue that good financial planners need to understand what drives people's investment decisions. They blame most investment mistakes on what they call "emotional sabotage," which can include failing to diversify because you just can't stand to sell the stock of the company you helped build or believing that real estate is always and forever your best bet because you once made a lot of money on a real estate venture. Clients can fall in love with a particular asset class. And you know what they say about love.

Their book cites a young woman who was wealthy and successful but who appeared to be taking unnecessary financial risks. It turned out that her father had left her money but had given his business to her two brothers, who built it into an empire. It was sibling rivalry -- she wanted to get even. But once she and her adviser understood the emotional component of her decisions, they were able to move to a more productive strategy for her, according to the authors.

To gauge emotional and other factors that may influence a client's thinking, Parisse and Richman recommend planners ask questions, including: Can you recall your earliest memory of money and investing? Growing up, were you rewarded, punished or loved with money? Does anything about money keep you up at night? What does money mean to you? What are you trying to accomplish?

They recommend that advisers ask probing questions and then listen to the answers. They liken this approach to the way a good doctor interviews a patient. "Compare the quality of the information garnered by the cardiologist who merely asks the patient if he or she exercises regularly with that of the physician who follows up the first question and probes further," they write. The doctor who asks more about how and whether a patient exercises and other issues will be able to evaluate "whether the patient is truly getting the right cardiovascular exercise and how much stress he or she is under -- both potential indicators of heart health."

That's pretty good advice, and you can benefit from interviewing yourself.

Asking yourself some of the questions they recommend will help you more clearly define what you want to do with your money. Get that straight, and future meetings with financial advisers are likely to be more productive. Also, if you're part of a couple, it's important that you both understand each other's views on these issues before you talk to an adviser.

Even before picking up their book, I had started listing things I want from an adviser, if I decide I need one. Here are two: Let me know that you'll make sure I understand everything by defining terms and asking me whether anything is unclear. In my initial telephone conversation with a mutual fund company I later visited for advice, the adviser followed almost every sentence with, "Does that make sense to you, Martha?" But not in a way that seemed to invite questions. In fact, in three meetings with would-be advisers, I had the impression that each thought I was asking too many questions.

And, if you want to impress me, a good book referral will help. It tells me something about the quality of your intellect and also that you'd rather work with an informed investor.

Several readers raised other important issues in their e-mails, which I hope to address in subsequent columns. Many were from industry professionals who expressed their own frustrations dealing with clients who were soured by bad sales pitches from competitors.

Robert F. Allen of Scott & Stringfellow Inc.'s private client group reminded me that it's a two-way relationship. "I think that the 'minimal, run-of-the-mill advice' is about what you should expect from an initial conversation," he wrote in an e-mail. "Unless I meet a new or prospective client with a narrowly defined issue ('I got this stock as a gift and I really need the cash instead'), my goal -- my only goal -- in a first conversation is for us to determine if we want to work together. Just as you have to decide whether you 'click' with me, so I must make the same decision.

"Some of it is chemistry, some of it is experience, and some of it is strategy. The chemistry part is difficult to quantify, but all adults know what it is. This is not personal affinity (though that's nice), but rather a sober business judgment of whether you are someone I want as a client," he wrote.

If a client has a history of flitting from broker to broker every 12 months, complaining about each one, he said, "Well, you'll leave me unhappy in a year, too, so let's just not go down that road."

Do you have any questions about your retirement planning?

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