First, Kill All the Brokers

Inc.'s finance editor explains how smart CEOs find trustworthy financial advice.

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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."

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