Personal portfolio

How smart CEOs find trustworthy financial advice

The last thing Mike Frost needs is another would-be financial adviser. Frost, chief executive and owner of 10-year-old TechWorks, an Austin manufacturer of personal-computer enhancements, gets from 5 to 10 phone calls every day from men and women trying to sell him some type of financial investment or service. "There are so damn many of them--usually stockbrokers or financial planners--and although I tell them that I don't need any more help, they just keep calling," he complains. "Once you get on their radar because your company has grown and maybe attracted some publicity, they never stop."

For Frost, whose company has grown to more than $100 million in sales, the barrage of calls is a painful price of success--as it is for many business owners. The unpleasant reality: There are far too many financial advisers out there. While many are perfectly competent professionals, some are unqualified, mediocre, or downright unethical. Thanks to inadequate government oversight, regulatory loopholes, and a truly shocking lack of qualification standards, "it's tough to tell the good guys from the bad guys," argues Shirley Rooker, president of Call for Action, a not-for-profit consumer help line based in Bethesda, Md.

That's not to say that there aren't plenty of well-qualified and experienced financial experts who can help you choose investments, find insurance, develop retirement or estate-planning strategies, and solve whatever other financial problems you and your family face. But they're not always easy to find, especially when your attention is focused on running a fast-growing business--while fending off armies of cold callers who have dubious pedigrees and products.

What's a company owner to do? Many entrepreneurs tell us that their best sources of personal financial advice are in their own companies. "We've got two top-quality accountants: our chief financial officer and our controller," notes Peter Tracy, president of two East Haven, Conn., companies, MicroPatent and Neato LLC, which between them log about $14 million in sales. "They do my own books as well as the companies', because my personal matters are so closely involved with the business stuff. Naturally, they're in a good position to make recommendations about the overall tax, investment, or retirement-savings strategies that make best sense for me."

Tomima Edmark, president of TopsyTail Co., a Dallas manufacturer of hairstyling and other consumer products, also taps her CFO. "Since my company is structured as a Subchapter S, we're all one and the same anyhow," she explains. Because she believes in diversifying her assets, Edmark is always on the lookout for potentially profitable investments. "But when I hear about one, I'll ask my CFO to check it out rigorously."

In a growing company, however, your finance staff may be as busy and distracted as you are. Does it make sense to supplement your staff's expertise with that of an outside expert, maybe a broker or a financial planner, who can keep an eye on day-to-day results?

No thanks, say Tracy and many others, who argue that the Internet and increasingly sophisticated software programs enable them to manage just fine without outside aid. In Tracy's case, his wife keeps track of the family's investment portfolio. "I'm so busy with the two companies that I can't possibly keep up, so she does that," he explains. "She reads publications, watches daily results, and uses the Internet to buy or sell our investments." Does she confer with him before giving the orders? "Never. That's her area of responsibility, not mine," he maintains.

Mike Frost, on the other hand, does it all himself, with the help of a "very cool on-line stock-trading service" that he can access both at the office and at home. "It lets me do unbelievable amounts of stock analysis at home after dinner, when the kids are asleep and I've got some spare time. I like to keep track of investments, mainly high-tech companies, whose progress seems interesting. And it's an incredibly efficient way of buying and selling stocks," he says. "I can place stop-loss orders or trade thousands of dollars' worth of shares for as little as $20."

Since Frost does, after all, have plenty to keep him busy during the day, he tries to schedule his investment activities for evenings and weekends. But he makes exceptions. When the Federal Reserve is contemplating a major announcement, Frost may keep a trading software window open on his office computer all day long. That way, he says, "I'd be able to act quickly if I needed to."

For business owners without the time or the temperament to micromanage the family finances, hiring the right financial adviser might pay off. But Deborah Bortner, securities administrator for the state of Washington, emphasizes the wide range of choices that are available once you figure out what type of relationship you need. "It can go all the way from 'I need someone who will keep close track of my investments and make regular recommendations' to 'I want to sit down with someone every few years to make certain I've got a financial plan that makes sense for my family and my company," she says.

For people who have definite long-term goals, one common and low-cost approach, notes Bortner, is to research the world of no-load mutual funds. You can do that on your own by consulting a good financial resource like Morningstar--a Chicago-based company that offers software, individual fund reports, a newsletter, and an on-line service--or one of the many other published compilations of mutual funds. Another alternative: consult a fee-only financial planner. "Once you've worked out a diversified savings plan, you can stick to it by yourself, so long as you regularly monitor the performance of mutual funds," Bortner says. Fortunately, that's the kind of investment watching that doesn't have to be done on a daily basis.

Still, as your company grows, some personal financial issues may arise that are so complex or risky you won't be able to solve them on your own--or with internal staffers' aid. Estate planning is a good example. "As my business has grown and my personal risks have changed, especially with bank loans, it's been important to me to have an estate plan that protects my wife and three children," says Tim McCorry. His distribution company, the McCorry Group, based in Berwyn, Pa., projects sales this year of $1.5 million. "I don't want a situation in which the company's loans get paid out of my family's house."

McCorry has discovered that estate planning is so complicated that he will rely only on an expert's advice. Already, he's designed a will and insurance protection; now he's exploring the possible tax benefits of trusts. Rather than turning to an adviser unfamiliar with his four-year-old company, McCorry consulted the estate-planning partner at the law firm that handles his corporate business.

When your personal network of experts can't satisfy your needs, ask for referrals from other experienced business owners, whether friends or members of business groups to which you belong. "My advice is quite simple: Walk away from every cold call you get," concludes Bortner. "Instead, look for people who have a proven record of success with customers that you know and trust. And then, whatever else you do, check them out." *

Jill Andresky Fraser is Inc. 's finance editor.

Next Steps: Before You Hire an Adviser
Investigate--with businesslike rigor and savvy--stock-brokers, financial planners, insurance salespeople, and any other so-called financial experts. Here are some tips from Shirley Rooker, whose involvement with Call for Action has taught her that no financial adviser (or adviser's recommendation) should be accepted at face value.

1. Take the initiative. Rather than waiting for all those experts you don't know to call you, draw up your own shortlist of potential advisers--when and only when you've identified a need. The best way to get names for your list is by networking with friends, corporate advisers, and fellow business owners.

2. Examine track records closely. "If someone gives you an expert's name, make sure you know exactly how he or she has performed. You'd be surprised how many times people will recommend someone just because he or she has a nice personality, without any firsthand knowledge of qualifications," Rooker says.

3. Keep your shortlist local. While that's no guarantee of success, you're better off if you're able to eyeball your adviser--and his or her place of business.

4. Interview several candidates. Among the questions to ask: What are your skills? How were you trained and certified? How long have you been in business? Have you ever been censured, fined, or otherwise disciplined by a regulatory agency? Also ask for client referrals. Then check out the accuracy of every fact the adviser has given you.

5. Check for complaints. But remember that a no-complaint record with groups such as the Better Business Bureau is no guarantee of future success or even proof, in itself, that the adviser works for a legitimate business. "The company may have just started up or may have changed names in order to escape its past," Rooker notes. That's why you need to take all the other precautions, too."