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How to Hire an Investment Advisor for Your Estate or Trust

Very often, executors, administrators, and trustees are thrust into situations for which they have no preparation and no experience. You may find yourself in this category as your attempt, for example, to dispose of Auntie Bess’s doll collection, rent Uncle Arnold’s house, or invest Cousin Mercy’s millions. Figuring out what you have, what its value is in the estate or trust, and maintain that value, if often a job for the experts.

The unfortunate reality is that, in a world where corporations and individuals alike are sued for seemingly frivolous reasons, an executor or trustee who fails to acts prudently to preserve the value of the assets is fair game for a lawsuit. If you’re in charge of assets that require investing, you should protect yourself against charges that you acted improperly. Hiring an investment advisor provides you with an insurance policy against such accusations.

Perhaps, you’re leaning toward investing the money yourself. Maybe you even assume that no one else will want the bother of managing the small pot of money you have to invest. But how do you even know if you have enough assets to bother with the expense of an investment advisor?

If you have $600,000 or less, you may choose to use a full-service broker. He or she can advise you for the cost of the commission (s)he makes on each stock or bond purchase and sales, or you may opt to invest in mutual funds (which are invested by a professional money manager), bypassing the need for a separate investment advisor.

For larger amounts, or if you want to invest only in individual securities, you may want to hire a reputable advisor whom you trust. In making this decision, keep in mind that, unlike the trust assets, which may be in there for the long haul, estate assets are held for a relatively short time.

Because your duty as executor is to preserve, not grow, the estate, you investment decisions may be quite simple if your duty is to distribute the estate outright to the beneficiaries upon its termination instead of continuing it in trust.

If you want to go with a professional to help you invest the money, you have a few options. However, unlike an attorney, Certified Public Accountant (CPA), an Enrolled Agent (EA), who must be credentialed either by a state or the federal government in order to practice, an investment advisor doesn’t have to have any specific credentials. Among the professionals who offer financial advice are

  • Certified Financial Planners: Licensed by the Certified Financial Planner Board of Standards, these individuals have completed extensive additional education in addition to their bachelor’s degree.

  • Attorneys, Certified Public Accountants (CPAs), or Enrolled Agents (EAs): Their training isn’t specifically in investments, but many of them have become quite expert in this area because of the nature of their practice. Don’t assume that every attorney or tax professional is qualified to also act as your investment advisor, but don’t rule out the possibility, either.

  • Stockbrokers: Full-service brokers not only purchase and sell securities for you but also research the companies they recommend. Stockbrokers must have passed the Series 7 exam in order to qualify. Remember, an online or discount broker doesn’t provide investment advice; (s)he merely places the trades following your instructions.

Knowing where to turn isn’t always easy, because no one size fits all. Be sure to ask questions, starting with those you asked when hiring an attorney or a tax advisor. And add this important one: Could anyone else (like the insurance company the advisor works for, for example) benefit from the advisor’s recommendations? If you don’t like the answer, or think the advisor is promising you the moon in order to win your business, move on to the next name on your list. Like speed-dating, if there’s anything that makes you uneasy in the first few minutes of conversation, chances are food that this advisor isn’t the right fit for you.

Investment advisors expect to be paid for their expertise, but their fees sometimes seem excessive. When negotiating what you’re willing to pay for these services, watch for certain warning signs:

  • Commissions: Stockbrokers earn commissions each time they buy or sell stocks on your behalf. When stockbrokers have complete control of an investment account, they may churn the account, placing trades frequently with the sole intention of earning more commissions. If you think your broker is churning, you should question the broker and advise his or her supervisor.

  • Fee for service: This method is the safest way to pay for advice because you pay only for the time the advisor works on your investments. Of course, sometimes the bill may seem high to you. If you suspect that your advisor is padding the number of hours being billed, request an itemized statement for a breakdown of the charges.

  • Percentage fees: You’re likely to see these fees from advisors who actively invest for you. The advisor charges quarterly fees based on two components — a percentage of the market value of the security portfolio and a percentage of income earned by that portfolio. If you feel the advisor’s percentages are too high, you can always ask for a lower percentage. The advisor wants your business, and his or her fees aren’t set in stone.

Because investment advisors often have almost unfettered access to the trust or estate’s assets, the potential for abuse can be high. Make sure you check references before you hire an advisor. Don’t shirk your responsibility by assuming that the investments are in safe hands. Review the advisor’s work, asking questions when something doesn’t make sense to you. Remember, someone else placed great trust in you and your judgment when they named you as fiduciary.

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