Choosing a DC-based wealth manager
Where local knowledge matters
With almost 2,200 registered investment advisors in the Washington DC area, how can you select the right DC wealth manager for you and your family?
The average person will choose the first wealth advisor they meet. This is often a family friend or the first person assigned to them at a Fidelity or Merrill Lynch.
But wealth management is an important relationship. You wouldn’t marry the first person you date, would you? You shouldn’t pick the first wealth manager you talk to either.
In this article, we first explore why Washington DC is different when it comes to choosing the right wealth manager. Next, we cover the three major major areas you should consider when selecting the right DC wealth advisor. Finally, we conclude with a wrap-up on the questions you should ask when choosing a Washington DC wealth manager.
Part 1: Why Washington DC is different for choosing a wealth manager
There are several factors that make Washington DC a very different place for choosing a wealth manager.
1. Taxes are different in Washington DC
Besides New York City, there are very few cities in the United States where commuters cross state borders on a regular basis. Yet in DC, people regularly work or live in two different states (Maryland, DC, and Virginia). Having a wealth manager who understands the differences between state taxes can matter greatly. For instance, Virginia has zero estate taxes, while Maryland has a 15% rate at the state level. That means the estate of a family who decides to retire in Maryland may end up paying hundreds of thousands of dollars more in taxes.
These differences are even pronounced with income taxes. Washington DC does not tax capital gains at the district level. There are also a number of real estate tax deductions that reduce property taxes by almost 30% for those who know where to look. For more information, click here for our full article on DC taxes.
2. Real estate investing needs to fit your portfolio
One area most people forget when selecting a wealth manager is that real estate often contributes to a massive part of most people’s wealth. And when you buy property in Washington DC, you need to make sure your real estate investment fits in with the rest of your portfolio.
In short, you need a wealth manager understands the local market.
If you want a more in-depth guide to Washington DC real estate, click here for our full article.
3. People in Washington DC tend to move retirement
You need a wealth manager who understands that you may move once you retire. Even if you are unsure where you will end up moving, having the knowledge that you may eventually move can help you make better decisions today.
For example, should you take a 30-year mortgage on a house if you’re 50 years old? These are questions a wealth manager should help you answer.
Part 2: So finding a local is important. What next?
With such a large pool in the Washington DC area, how do you then choose the right wealth manager?
It’s hard to evaluate a wealth manager without working with them. Picking a wealth manager is mostly a sales process, after all. Often, you will only find out the quality of a wealth manager after working with them. But putting your money and trust at stake should be done carefully.
Fortunately, there are three key areas you can look for in choosing the right Washington DC wealth manager.
In the United States, every financial advisor must pass certain tests to become registered with FINRA and the SEC. These qualifications generally guarantee all registered wealth managers have a minimum level of background knowledge.
But what if you want better?
The majority of wealth managers are primarily salespeople. It’s their job to earn clients and to generate income for their employer. However, this means that many wealth advisors are ill-equipped to answer anything beyond the basic questions tested by FINRA’s basic entrance tests. Ask your wealth manager what “contango” means and see whether they can give you a good response.
This obviously produces a perverse situation. The most productive wealth managers must also the best salespeople. That’s how they build their book of business in a competitive market like Washington DC. But being a good salesperson doesn’t necessarily make you a good wealth manager.
The three major credentials you should look for in a wealth manager.
A. Resume: formal education and work experience
Like it or not, a wealth manager’s background is a good indicator of their quality. A solid educational background goes a very long way since it instills a rigorous mindset for training and knowledge-seeking that the wealth manager will later need.
For education, look for managers who have graduated from rigorous schools. State schools are also fine, especially as long as the wealth manager graduated in the top of the class. You want somebody who worked hard in school, because you want them to work hard for you as well. People can change after college, but in our experience, the hardest working people tend to stay the hardest working.
For work experience, look for people who are vice presidents or partners of their company. It’s true that wealth management companies promote based on the amount of business there managers bring in. But the best managers tend to retain their clients as well. And this can signal quality in a manager. In a market as competitive as Washington DC, there is generally little room for underperformers to get promoted.
B. Financial Designations (CFP, CPA, CDFA, etc)
In addition to the required FINRA licenses, independent regulatory bodies have set up additional designations. These are highly rigorous courses where the wealth manager has the pass a series of tests.
The most common of these designations is the CFA. The CFA is a leading association for investment professionals. In Washington DC, was founded in 1953 at the Washington Society of investment analysts. Today the society consists of 2,100 professionals in a variety of positions including portfolio managers, analysts, consultants, and foundation fund executives.
A number of these CFA professionals find themselves as wealth managers. By finding a wealth manager with the CFA designation, you’re helping yourself find someone with similar training to these portfolio managers and fund executives.
C. State Certifications (CPA)
Additionally, you may find some wealth managers also have a CPA. A CPA, or a Certified Public Accountant, is a title that is given to qualified accountants. It is awarded at the state level and requires several years of training to achieve.
Most commonly, CPAs will work as company accountants, preparing documents to file with the Securities and Exchange Commission (SEC). Some will also work in tax, representing clients in front of the Internal Revenue Service (IRS). Both these roles require significant knowledge of accounting and tax laws.
If you’re lucky, you may find a wealth manager with a CPA. This is an advanced certification where the wealth manager may be able to help you with accounting issues as well. This is a very powerful combination; taxes make up the single largest expense of any high net worth family’s expenses, often taking up to 30% of a family’s income once you include state and local taxes.
People looking for wealth management in Washington DC often have to contend with multiple state and local taxes. A large number of DC workers commute in from Northern Virginia or Maryland. So even minor changes in your taxes can pay for the wealth managers fees many times over.
2. Personal Fit
The second area you should look into when choosing a Washington DC wealth manager is whether they fit with your personality. There is a stereotype that people in Washington DC are obsessed with politics. This is often actually quite true.
But when you’re choosing a Washington DC a wealth manager, you want to make sure the fit goes even deeper than that. And the best way to do that is through a telephone call or in-person meeting.
There’s nothing specific to Washington DC about needing a good personal fit with a financial advisor. But because you have such a large choice of advisors, this gives you the opportunity to find the right one. So during your first meeting, make sure you look for these particular traits:
A. Mutual respect
Does the wealth manager respect you as a person?
This is a skill that even the best wealth managers often lack. Many wealth managers are so involved in the sales process, they forget that education is actually key. And not just the education of the client.
What do I mean?
The wealth manager also needs to be educated. He/she need to be educated about you. About your situation, and about your goals, fears, and desires.
A good sign that the other side respects you is having them asked meaningful questions, and listening for your response.
Is the wealth manager honest with you, and you feel you can be honest with him/her?
Going to a wealth manager is like going to see a doctor. If you want them to fix what’s wrong, you need to be honest with them about the problems and concerns you have.
When you talk to the wealth advisor, you feel you can be honest with them? And do you feel they are honest with you?
Honesty is an area that humans are naturally very good at detecting. According to a study by the University of California, groups of people had an overall accuracy of 86% in telling truth from lies.
So when you meet your next wealth advisor for the first time, take a moment to feel where you trust him or her. There are a lot of politicians in Washington DC, and you probably have had a lot of practice in telling truth from fiction!
C. A sense of playfulness
Does a wealth manager make you smile?
Okay. This sounds like a strange one at first. People in Washington DC are known to be all about business. We put on our best business wear, we do a great job at work, and then we had back home to relax.
But wealth management is more than that. It’s about getting you comfortable with you and your money. It’s having a guide to help you on your life journey.
And one thing that Washingtonians tend to forget is that this journey should be fun.
Perhaps we can blame it on the commute. DC traffic was ranked the second most congested city in the US by Smarter Travel.
Or perhaps we can blame it on politics…
Either way, in our experience, having a wealth manager who can make you laugh a little makes an enormous difference in getting you comfortable about your money. While not a necessity, it certainly a great benefit in finding the right personal fit.
3. Company Fit
Finally, choosing a Washington DC wealth manager means you have a very wide choice of companies. Only New York, LA, and Chicago have an equally wide variety of wealth managers to choose from.
Does company size matter?
Often, people will select larger companies such as Charles Schwab or UBS based on an issue of trust. These are big-name companies with solid reputations behind them. And you wouldn’t be wrong to go that route.
The largest wealth management companies have a reasonably selective process. They won’t hire people who are unqualified for the job. However, this comes with a downside. That’s because the best managers often leave and set up their own shop.
That means the largest wealth management companies tend to attract decent quality wealth managers.
But what about small companies? There’s a much wider range of quality at smaller firms, but the best managers tend to own their own business. With smaller companies, look for experienced wealth managers. That’s because weaker small companies tend to disappear: there’s not any larger organization for weaker managers to lean on.
Also, most small wealth managers in Washington DC, including us at Jurnex, actually belong to a network of larger companies. Even though the wealth manager works independently, your money will still be deposited with Charles Schwab or Fidelity.
That’s because most small managers understand the importance of fiduciary duty. This means they must work in the clients best interest. And that means using the brokerage at the best and most reasonably-priced banks possible.
Specialist or generalist?
Another benefit of choosing a Washington DC wealth manager is the prevalence of specialist-type firms. These are companies that focus on a certain market niche. At Jurnex, for example, we focus on helping women, LGBT people, and their families gain financial independence. Our mission is to help underserved people master their finances.
Other specialist companies focus on other areas, such as business ownership, lottery winners, politicians, and others.
For most people, a general financial advisor will do. And that’s because most people don’t have complicated balance sheets. In some cases, even an online service will be enough.
But think about your situation for a moment. Life gets complicated quickly. You might have a kid or two, a house, and all of a sudden you realize you’re part of the affluent or high net worth group. Or you might find yourself in the middle of a divorce.
Whatever your case, the chances that you are looking for a wealth manager means you need specific advice. In which case, it pays dividends to go with a specialist.
Some large banks will have specialist wealth managers as well. Make sure you inquire about this.
Part 3: Questions to ask your DC wealth manager
Here is a short list of questions you can ask that covers the three major points we went across:
- Work experience: what company are you at? What position are you in? How did you get there?
- Education experience: where did you graduate from? How did you perform there?
- Testimonials: how do your clients view you? How has your performance compared?
- Mutual respect: Do you trust and respect me as a client? WIll you work hard for me?
- Honesty: Are you a fiduciary? Can I totally trust you?
- Sense of playfulness: What worries you most? Can you make me comfortable about my finances?
- Company size: What resources does your company have?
- Specialist or generalist: Do you have the skills needed to help my particular case?
Choosing a Washington DC wealth manager can be a complex process simply because you’re spoiled for choice. Living in a smaller town, you may only have a choice between one or two financial advisors in the area. In Washington DC, however, you have almost 2,200 people to choose from. It’s impossible to interview so many people, but this guide should have given you a quick summary of how to narrow your search.
Make sure you don’t go with the first advisor you see, and try to meet at least three advisors before making your final selection.
And if you need help, we had Jurnex provide free consultations. Having the right wealth manager matters, so we love hearing from you too.
At Jurnex Financial Advisors, we have securities by Charles Schwab. Yet we retain our operational independence from any third party. This means you can have the confidence your money is safe with one of America’s best brokerages and still receive knowledge and advice from a local, independent firm.
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