How a fee-only wealth manager is like having your own CFO and Chief Visionary Officer (CVO) Featured

9:01pm EDT September 30, 2011
How a fee-only wealth manager is like having your own CFO and Chief Visionary Officer (CVO)

Business owners are always striving for success, and success has many definitions. My favorite definition of success is that it is a progressive realization towards a worthwhile predetermined goal. We often use external measures to assess the success of our endeavors, and sometimes using only external criteria may make us feel unfulfilled.

Significance is an additional measurement, but it has internal measures that we can use to “take our own temperature” as to how well we are succeeding. The dictionary explains significance as the quality of being important; the quality of having notable worth or influence. Significance will have many definitions to all of us, but the words with purpose and importance seem to be associated with our personal feelings about significance.

On your life-plan journey, words such as honor, service, integrity, respect and love become interdependent with success and significance. Significance manifests itself in the various roles that you perform each day: business owner, employer, citizen, community leader, parent, and the list goes on. The path to significance does not have to be taken alone. You learn that there are individuals who can play important roles for you in shaping your concept of personal significance.

Let me entertain a candidate for you that may help you in building success in your personal and business financial life. You have seen articles on how a wealth manager can be a personal CFO to you and your business, but have you considered another dimension, CVO, as another characteristic for your financial advisor?

How is a fee-only wealth manager like having your own CFO and Chief Visionary Officer?

So let’s first define some of the “bolded” words within the title. Wealth managers come in “all flavors” and need to be categorized by scope of services/areas of concentration and compensation structure.

Wealth management is an investment advisory discipline that incorporates financial planning, investment portfolio management and a number of aggregated financial services. High net worth individuals (HNWIs), small business owners and families who desire the assistance of a credentialed financial advisory specialist call upon wealth managers to coordinate retail banking, estate planning, legal resources, tax planning and preparation and investment management. Wealth managers can be an independent Certified Financial Planner®, MBAs, Chartered Strategic Wealth Professional, CFA Charterholders, or many differently credentialed professionals.

When it comes to compensation, there are basically two groups: fee-only and all others. You may want to work with a firm or individual who has eliminated potential conflicts of interest (i.e. if a product sale is the basis of the transaction, is the advice given totally objective?). A product purchase may be a necessary component of the strategy, but does every piece of advice result in a commissionable event? The ideal situation is a flat-fee project or hourly contract that has been agreed to in advance of the engagement, outlining the scope of services desired and the expectations of both parties. Transparency and disclosure are critical to your relationship.

The chief financial officer (CFO) is a corporate officer primarily responsible for managing the financial risks of the corporation. This officer is also responsible for financial planning and record-keeping, as well as financial reporting to higher management. A personal CFO can manage your business or family’s financial risks and be responsible for your business and personal financial planning and record-keeping.

A chief visionary officer (CVO) is expected to have a broad and comprehensive knowledge of all matters related to the business of the organization as well as the vision required to steer its course into the future. The person in charge must have the core-competencies of every business executive, but in addition the visionary ideas must move the company (or the individual/family) forward. This vision is used as the basis for defining corporate and personal strategies and working plans. A personal CVO can provide the sophistication to incorporate quantitative data along with qualitative data to help create the family or business vision and move forward toward your goal.

The CFO-CVO combination in an advisor/advisory firm is the epitome of art and science in collaboration with one another, complementing and providing you and your family with a holistic approach to somewhat complex financial and life-planning strategies and direction.

These definitions should help you in formulating questions to ask as you build your group of advisors to create and implement your business and personal financial plan. Your specific questions to your prospective/current wealth manager should determine his or her competency and scope of services. What potential conflicts of interest are imbedded in their business model?

When you’re clear as to what they do, then you need to find out how they are paid for their services. If they are not disclosing their fee for service, and are telling you that they get paid from the investment/product purchase, are you comfortable? In summary, does their working agreement with you put you at the center of the process, and have all of the potential conflicts of interests been disclosed to you before you engage their service?

Success and significance are the direct result of personal and business relationships. As you build your wealth management team, choosing great partners can help the significance of your financial and life plan journey.

Robert A. Valente, CFP®, AEP®, is CEO and Managing Member of RAV Financial Services LLC. He can be reached at rvalente@ravfinancial.com.