In search of good advisers

We got a financial adviser,” says Nancy (not her real name), a friend in her 40s, who works with her siblings in their retail family business. “But he recommended products from his bank, and we lost money. We got a lawyer, but his advice is not worth his huge retainer. Can you recommend anyone?”

“Get an accountant, because none of you are very comfortable with finances,” I say.

“CPAs in big firms also want to push their services,” says Nancy. “The banker is my brother’s classmate, who recommended the lawyer.”

“Many bankers, accountants, lawyers have good intentions,” I say. “But not many can probably resist the pressure to push their firms’ services or products.”

US family consultant James Hughes, Jr. puts it bluntly in his book Family Wealth: “On the issues families face in selecting outside advisers … the American public holds professionals … in low esteem. As a sixth-generation lawyer, with a seventh, my nephew, working in my [family advising] office, I am particularly upset about the state of my beloved profession.

“Most professional firms are no longer organized to solve their clients’ problems. They are organized to sell products to their clients. Frankly, these firms are no longer professional organizations, they are businesses.”

“What about private bankers who can pay attention to your needs?” I say.

“No!” Nancy is vehement. “We have investments in institutions in other countries. But when private bankers visit us, they suggest sometimes risky investments even if we have little appetite for risk. They charge service fees constantly, with no guarantee of good returns. They make us sign tons of papers, with small print that no one really reads to excuse them from liability.”

I am not in banking, so I have no idea how to respond. I hope that the industry will make changes to truly place their clients’ needs paramount.

“Private-client work cannot be mass-produced,” says Hughes. “Each client’s problems must be solved individually. These are tough, messy human problems rather than neat and clean numbers issues. For [professionals] the goal is to help the customer swallow up the other guy before he swallows you. In private-client work, it is pretty hard to recommend to your client that she swallow her sister.”

“Do not put advisers, such as lawyers, on a regular retainer, unless your business is inundated with cases which need to be handled by a team round-the-clock,” I say. “Pay advisers on a project basis. Do not make them directors, with shares. Ensure they have no conflicts of interest and pay them honoraria for participating in board meetings and for doing other services with clear deliverables.

“But you need advisers with expertise you do not have. All family members should get MBAs or brush up on finance and accounting.”

“Where can we find good advisers?” Nancy asks.

For ethical reasons, I cannot recommend specific names, but I tell Nancy to get recommendations from trusted friends with advisers who have served them well.

I quote Hughes: “Seek people who describe themselves as ‘called’ to this work. Look for people who are greatly interested in other people, are curious about you, and who are creative in areas beyond their professional lives. Seek a person who might become your friend, your spouse’s friend, and your children’s friend.

“Seek advisers with ‘grasshopper’ minds … the ability to work on 15 to 20 different problems every day, jumping from one to another like a grasshopper … You had to have seen an enormous variety of situations before you had enough experience to offer a family any useful advice … above all ‘do no harm.’”