6.16.2014

Vetting Your Business Manager For Success

A business manager can be a headache if you don't vet him or her properly.

In recent Hollywood news, THR reports that:
[Actress] Susan Sarandon has filed a lawsuit against her former business manager alleging that he breached his fiduciary duty to her by recommending investments that benefited his family. 
The lawsuit, filed Wednesday in Los Angeles Superior Court, claims that Richard Francisand his firm, Francis & Nachshon LLP, concealed material facts from Sarandon, such as personal and family connections to potential business opportunities, and that he made false representations about investments, including that "she could sell anytime."
Read the full complaint here.
Although the world of finance has made itself the subject of mistrust by the public at large, people still want to invest their money in the hopes of generating more wealth or, at the least, creating a nest egg.  As a successful artist and/or an entrepreneur, suing your business manager (or financial planner) should be the last resort.  It is best to vet him or her before you entrust your assets and investments with them. And after the vetting, you should still remain on top of what your business manager does to prevent being left in the dark by a corrupt business manager until it's too late.

Here are some tips for choosing and working with your business manager:
  • Decide what type of advisor you want. These are the four basic types of advisors and the key characteristics for each: 
Registered representatives, also called stockbrokers, investment representatives, and bank representatives, are paid commissions to sell investment and insurance products. Their primary sales licenses are Series 6 or Series 7. 
Financial planners are a tough category. There are no licensing requirements for planners. Anyone can claim to be a financial planner whether it is true or not. Your vetting process should limit your selection to those who have earned the CFP, CPA/PFS or ChFC certification.
Financial advisors are Registered Investment Advisors (RIAs) or Investment Advisor Representatives (IARs). They are compensated with fees and are financial fiduciaries so they are held to the highest ethical standards in the financial services industry. 
Money managers have the same registrations and characteristics as financial advisors. Their distinguishing feature is that they make decisions for investors without their approval in advance. ~~Forbes
  • Look for a financial adviser who is a certified financial planner (CFP) who passed a test by the Certified Financial Planner Board of Standards. They're licensed and regulated, plus take mandatory classes on different aspects of financial planning. ~~WSJ
  • Consider the planner's pay structure. A planner who earns money based on commission rather than a flat, hourly rate could have an incentive to steer you in a particular direction.  Check the National Association of Personal Financial Advisors (NAPFA). These planners are fee-only, which means their only revenue comes from their clients. They accept no commissions at all and pledge to act in their clients’ best interests at all times. In many respects, NAPFA standards meet or surpass the requirements needed for a CFP credential. ~~WSJ
  • Read the code of ethics that your financial planner adheres to. Look for the word "fiduciary" and language that requires planners to look after your best interests. In short, this means the planner has pledged to act in a client’s best interests at all times. Investment professionals who aren’t fiduciaries are often held to a lesser standard, the so-called sustainability standard. That means that anything they sell you merely has to be suitable for you, not necessarily ideal or in your best interest. This point is critical, and should be a deal breaker if a prospective planner is not a fiduciary. ~~WSJ
  • Run a background check on your plannerStart with these two questions: Have you ever been convicted of a crime? Has any regulatory body or investment-industry group ever put you under investigation, even if you weren’t found guilty or responsible? Then ask for references of current clients whose goals and finances match yours.  Here are more good questions to ask. ~~WSJ
  • Gather and compare data. Get the same information from multiple professionals so it is easy to compare their responses. Your data gathering should focus on categories of information that impact competence, ethics, practices, and results:
    • Credentials: Experience, education, certifications, association memberships; 
    • Ethics: Compliance record, criminal record, licensing, registration, fiduciary status; 
    • Business practices: Track record, methods of compensation, expenses, types of reports, ongoing services; 
    • Services: Planning, investment advice, money management, insurance advice, tax advice, legal advice. ~~Forbes
  • Vet advisors on the Internet. On the web you can find public information that is not totally controlled by financial advisors or their firms. Plus, you can maintain your anonymity. Go beyond the advisor’s own website.
    • "Google" the names of advisors and their firms (click through at least 20 of the hits you get).
    • Look for third party content that mentions the advisors or their firms (newspapers, magazines, websites).
    • Use keywords to uncover problems. Combine the advisor’s name and the firm names with these words: fines, scams, fraud, lawsuits, guilty, suspensions, FINRA, and SEC.
    • Check advisor and firm compliance records with FINRA and the SEC~~Forbes
In addition, the SEC has resources for helping people vet their financial planners and business managers.

One last thing, it is your job as the client to remain aware of what your business manager does in your name.  You need to have a working relationship where you feel open to ask questions and review books at any time.  Otherwise, you might end up like Susan Sarandon, finding out about questionable investments when it's too late.

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