Picking the Best Wealth Advisor is a Daunting Challenge

In fact, amid the chill winds of the credit crisis, making the smart choice looks particularly daunting.

Certainly, the wealth management industry as a whole needs to do a stronger job of helping actual and potential clients choose the advisory channels that suit their needs and ambitions best, argues David Poole, managing director and head of business development for Citi Private Bank in Europe, Middle East and Africa. Mr Poole can claim he speaks from deep experience - he has worked at Lazard Brothers, NM Rothschild, Singer & Friedlander and Merrill Lynch.

I dont think the industry has done a good job at explaining what the options are, Mr Poole told WealthBriefing during a recent conference call alongside John Rhodes, a consultant to the private client division of Stonehage, the UK-based multi-family office. A veteran of the private client industry, Mr Rhodes previously worked at the law firm Macfarlanes for 40 years.

As both men explained, it can be easy for wealthy families to make the mistake of recruiting too many advisors rather than too few, as all may offer similar but subtly different ideas, ending up in confusion, potential conflicts of interest and high fee bills.

One issue to watch is when advisors try to jostle for control over a clients affairs. It is very important that a client appoints a lead advisor who can then appoint sub-advisors. Too often, big families get into a spiders web of advisors. It is very important to keep the structure simple, Mr Poole said.

Mr Rhodes, meanwhile, said that in response to such potential confusion, one route has been for families in the ultra high net worth space, for example, to go down the route of creating a single family office. There has certainly been growth in this sector but there can be problems, he said.

Investment advisors would tell you not to put all your eggs in one basket and you should not expect all wealth management advice to come from one basket either. There is an issue for those who go for a single family office model, said Mr Rhodes.

It single family office sounds like a great idea and probably will work all right for a while. But the situation can become ossified and if you go down a generation or two you can become comfortable and there is not sufficient access to different, cutting-edge advice, Mr Rhodes said.

The choices are wide - high-end independent financial advisors, accountants, lawyers, private banks, wealth managers, freelance consultants, single and multi-family offices.

Crucially, the would-be client needs to first hire an advisor who can take a broad view of a persons broad financial needs and who can be trusted with the powers to delegate to others to obtain specialist advice. In particular, a client must beware of advisors who try to give views on areas outside their core expertise, as can and does happen if an advisor is frightened that outsiders might poach his recently enriched client.

In all of these situations, families tend to look to one lead advisor otherwise life becomes very confusing for them. One has to be the chairman of the board in how things are to be done, Mr Rhodes said.

It, the advisor can be a family lawyer, accountant, private banker. It will be one of these people who will be lead advisor, someone with a reasonably good knowledge of what is going on in a wealthy family. From the familys point of view, it will often be clear who the right person is to be that lead advisor, he said.

There are a lot of wealthy people who struggle about what to do with their immediate family. Sometimes they get it right but sometimes they get it completely wrong, Mr Rhodes said.

A key issue in judging a good advisor is chemistry. Are you talking to someone who has the same outlook on life as you? I am not talking about whether you went to the same school as them. Rather, the advisor has to have a clear-sightedness, the ability to see the big picture, said Mr Rhodes.

Although much of the advisory market can appear dauntingly confusing, paradoxically there are relatively few choices in some sectors, such as stand-alone firms providing advice on investments for rich families in the UK. There is a handful in the UK, Mr Poole said, giving examples of Cambridge Associates, Unigestion, Jewson and Lord North Street.

The advisory market is also changing; both men cited the examples of law and accountancy firms offering, or potentially providing, investment advice. Mr Poole said he was concerned about recent UK legislation paving the way for possible flotation of law firms and similar professional bodies.

I think this is a potentially worrying development, given the conflict of issues that may arise, he said

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