Personal Finance 

We Are Working with a Financial Adviser

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Good Advice for Hard TimesOver the last year, we’ve made some “direct” investments in companies that are doing some exciting things. They’re startups, in the sense that they’re not household names and they’re relatively new companies looking to make big changes in their respective industries, but these aren’t the familiar technology names you hear about in the news. These are companies looking to solve problems, usually boring problems in big industries, but problems nonetheless.

These opportunities were brought to us by a financial adviser who, in addition to advising, also sets up funds that offer these unique investment opportunities. I know this sounds a little vague, I’m intentionally being vague, but after some due diligence we’ve decided to work with her as our financial adviser and I want to write about the entire experience in the hopes that it helps you in case you are thinking about working with an adviser.

Why a Financial Adviser

The first question off the bat should be – do I need a financial adviser? I’m by no means a financial expert, even though I write about it all day on the Internet (that’s qualifies me right???), and I recognize that. I see working with a financial adviser much like working with a personal trainer. Everyone knows that you have to get at least twenty minutes of aerobic activity three times a week and the key to building muscle is repeatedly picking up and putting down heavy things. A personal trainer provides a process and a sense of accountability. They also are more experienced, having worked with many other people and their specific situations and scenarios, to be able to help in specific situations.

For example, until I met with her, I didn’t think all that much about umbrella insurance. She made a compelling case for it and why we might want to consider it but she wasn’t selling it. She just suggested we look into it. I wasn’t averse to umbrella insurance, it was just in a blind spot. Next on the list is probably a will. 🙂

Due Diligence

Due diligence took on three parts. First, I wanted to understand what my adviser would be doing in terms of process and approach. This was something you can only learn by talking to them and asking the right questions. What are the right questions? To be honest, I didn’t bring a list of questions but my wife and I met with her for an official “first meeting” (I’d met with her numerous times to talk about business and about direct investments, but not really as an adviser) and we left with a good understanding of her approach and how we’d work together. (And she’s fee only, though if we do invest using her firm’s funds she will receive a share of those fees too but investing in those funds is not required)

Next, I wanted some references and she provided an ample supply of them. I always think references are a little strange because as the person offering up references, you always provide the good ones right? Anyway, I talked with almost all of them and was left with a sense they were all happy with working with her. We found references that were in similar life stages and those with similar assets, just to get a good mix.

Finally, I did the basic stuff like confirming her credentials were true. I found her without incident looking her up on FINRA’s Broker Check and the CFA Institute’s Membership Directory. In doing so, I learned that she’s also has a J.D. from Harvard, a B.A. from Stanford and while I don’t know many advisers, it sounds like she’s pretty well credentialed.

Special Investments

In talking with one of the references, I learned that one of his primary motivators matched mine – the special investments. To be clear, these are risky deals because there is zero diversification. We’re essentially lending money to a company in the hopes they pay back the loan at a certain interest rate. The companies are real (I visited one two weeks ago) and this isn’t some Ponzi scheme situation (it helps that my friend’s dad is an engineering consultant to the company… same friend who introduced me to the adviser), but you never know.

Networking Opportunities

Finally, and this is not an insignificant consideration, she’s very well connected through her own work and she’s very entrepreneurial, which gives us a lot to talk about outside of the cut and dry financial stuff. While I wouldn’t necessarily need to hire her or her firm as an adviser to continue this, I do like the idea of expanding the relationship because I think it’ll be mutually beneficial down the road.

We’ll see how this goes and as we proceed, I’ll be posting updates as to what we are doing so you all can follow along at home. I don’t know why but it suddenly feels very “adult” to be going down this path. Sometimes I think I have a tendency to want to “do it yourself” on everything, not so much to save money but to fully understand it, but just one look to a recent dry wall patch job shows that maybe DIY isn’t the best course for everything. 🙂

If you’ve had experiences with a financial adviser and would love to share your experiences, I’d love to hear about it.

(Photo: Daniel Y. Go)

{ 11 comments, please add your thoughts now! }

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11 Responses to “We Are Working with a Financial Adviser”

  1. I don’t have an adviser yet as I don’t have enough assets to warrant it but in the future I may consider getting one. The special investments and umbrella insurance aren’t things I would think of so it does make me wonder if I wrote off financial advisers too early.

  2. Michael says:

    I’m curious: Is she just providing advice (and opportunities) for a flat fee, or is she actually managing your investments, presumably in return for a percentage based on assets under management?

    • Jim says:

      Advice and opportunities for a flat fee, some of that advice might include allocations of assets where it might make sense to put it in her funds but that’s hardly a requirement.

  3. Aloha Jim,

    This was very interesting to me, because I used to think like you (your former post “Why I don’t use a financial advisor”).

    Most financial advisors recommend some product or service that they receive commissions from, but a fee based one does make more sense. That is important, but more important is finding someone who can steer and advise according to what you are interested in.

    Aunty’s field of interest is currently real estate – cash flowing real estate. However, it is probably one of the most expensive of investments (outside of buying oil fields) and we are needing to generate cash in order to purchase. Just by writing this down, I can see that there is a vast hole in our knowledge and experience as to how to generate cash.

    Perhaps it is also time for Uncle and me to seek the services of a financial advisor. Perhaps. You have opened a wedge in my formerly closed mind about financial advisors.



  4. Jim M says:

    Thanks for this. I have toyed with the idea of hiring a financial planner for years but never pulled the trigger. This is making me consider it anew.

  5. joeyjoejoejr says:

    That doesn’t exactly sound like a fee-only financial adviser to me. She still has an incentive to suggest investing in her firm’s funds, which is the same conflict of interest that causes concerns about commission-based financial advisers.

    You seem to have both negatives of the conflicts of interest of a commission-based financial adviser and the obligation to pay a fee for financial advice. Do you know how much of a cut she gets of the investment fees of just that she gets a cut? Maybe you should ask her to credit her cut of the investment fees against the financial adviser fees she is charging you.

    You may have already written about this, but are direct investments an appropriate investment for you? That would be a good question to ask your financial adviser (if she didn’t have an incentive to sell you on exactly those investments).

    Such risky direct investments could be a part of a diversified portfolio, but the size of the overall portfolio would need to be rather large in order to justify even a couple thousand dollars allocated to direct investments.

    I am also curious about the type of investments you are looking at (you said you were intentially being vague and implied that these were debt instruments). Are they debt, convertible debt, preferred stock, equity, or something else? Are the companies actually early start-ups (e.g., angel investing), VC-stage start-ups, small-cap publicly listed on a major exchange, or OTC listed? Are the firm’s funds, mutual funds, close-end funds, private equity funds, or hedge funds? What kind of fees are charged for the investment?

    • Jim says:

      Yes, she’s not technically a fee-only financial adviser but she has told me what she gets if I invest in funds with her firm. We’ve already talked about it and she knows I’d prefer to remain in Vanguard funds, so that’s already out in the open. We’ll see what happens next in the process.

      Direct investments, in the amounts I’m investing, are appropriate and they’re in areas where my expertise and network can have a positive impact. There are several types of deals and they vary, few are very early/angel startups, others are farther along in development, etc. It’s really not more than five or six deals and I’m vague mostly because I don’t really see the benefit of going into it too much, you know? Some are for equity and others are debt plus equity (not convertible debt though).

      • joeyjoejoejr says:

        It sounds like you have a good handle on what you are doing then, which is what I would expect from reading this site. The questions were based on experience that tends to show most investors are vague when they don’t understand the investment rather than because they are being intentionally vague (as you were).

        The financial adviser discussion you focused on is much more broadly applicable and you identified some good considerations. I just wanted to caution that direct investments really aren’t for most people with net worths below $1 million.

        • Jim says:

          Yeah, I find that 99% of the time, when writing online, the details get in the way of the broader discussion. Direct investments are a bad idea if you have net worths below $1 million and I find that the accredited investor requirement is often a good barometer of who should be involved in those types of investments. It’s probably a little low actually, depending on how much you want to commit.

          It took me a while to fully understand all the terminology and the like, I found it interesting to read (albeit a little dry) but after I understood it it was pretty straightforward. It’s like another language really…

          • kel says:

            If someone made less than $100,00, what would be the best way to invest? I’ve heard of penny trading and things. I’m new to this and if you have other articles, I will browse through it. Thanks.

  6. Shirley says:

    Thank you for the FINRA’s Broker Check link. I found the info there to be quite useful after looking up our broker.

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