Doing business with a large bank may seem like an attractive option for a growing business. But at a large bank, a smaller business can get lost, as some banks are increasingly turning their focus to larger customers, says Kevin Ball, head of commercial lending at Lorain National Bank.

“A local bank can offer a number of unique value propositions, including experienced staff who are familiar with your industry, a flat organizational structure allowing access to decision makers and quick decision making and execution,” says Ball.

Smart Business spoke with Ball about how a local bank can tailor its services to your business’s needs.

How can partnering with a bank whose staff has decades of experience benefit a business?

That kind of experience is necessary in order to quickly understand a business and determine its needs and if the bank can meet those needs. Businesses often complain that banks take their information, then it takes forever for them to come back and make a decision.

If a bank can make a quick decision, even if the answer is no, and explain its reasoning, the relationship can be preserved, leaving the door open for future opportunities with that business. That sounds easy to do, but it is quite rare to find in the banking world.

How can industry-specific experience help a bank serve businesses?

If a bank has done a lot of business in a certain industry, its bankers have built up experience with and knowledge of that industry. Because they see different companies in the same industry and know how things are done, they can provide more than banking solutions; they can also provide insight into that industry and advise a business owner on something he or she may not have thought about.

Bankers at smaller, local banks are also more likely to sit on boards in the community. They are deeply ingrained in the communities they live in and attend functions and get to know the community’s business leaders. This can help them spot potential needs and allow them to talk with potential clients about their needs before they even walk into the bank.

What are some other pieces of the value proposition of a local bank?

A smaller, local bank doesn’t have layers of management and is more streamlined than a national or international bank. Bankers can visit a business owner and bring with them the head of credit, or the president. Those are the decision makers, and that gives them the opportunity to really get to know your business. There aren’t many large banks where you will get that kind of personalized attention.

In addition, smaller banks tend to be heavy participants in the SBA loan programs. That helps them mitigate some of the risks that might be involved in the transactions and can accelerate lending to small businesses.

How can partnering with a local bank help a business owner develop long-term relationships?

At a local bank with experienced bankers, business owners get to know their bankers. At larger banks, people are often trained by rotating them through departments, and business owners may speak with someone different every time they call the bank. Smaller banks are less likely to do that, and with an experienced staff, you are dealing with the same people every time you call, giving you the opportunity to build that relationship.

How do those relationships result in a better match of banking products?

It allows the bank to better tailor products to a business’s needs. The banker has time for work with individual businesses to find out exactly what they want and need, tailoring solutions to that, as opposed to a big bank approach, which often views smaller businesses as too small to do business with.

A lot of big banks say they’re lending, but they’re not. A business owner might find more success with a local bank, which will take the time to understand their business.

Are a local bank’s clients limited to the area?

Not necessarily. With today’s technology, the reach is broader. It’s no longer necessary for banks to have branches on every street corner. Modern treasury management provides the technology to scan items and use an Internet-based system. If you find a bank that offers great service and solutions that fit your business, its physical location isn’t as important.

How does the market for lending look going forward?

There is currently a good balance of activity and an increasing amount of optimism in the marketplace. Car dealers are having a great year so far, business is booming for some manufacturers and industrial space is starting to get tighter. Although the media tend to focus on negative stories, there are a lot of businesses that are thriving.

Kevin Ball is head of commercial lending at Lorain National Bank. Reach him at kball@4lnb.com.

Insights Banking & Financeis brought to you by Lorain National Bank

Published in Akron/Canton
Sunday, 30 September 2012 21:01

How to maximize your banking relationship

Establishing a good relationship with your banker is beneficial to your business because a bank can be a source of ideas to improve your company.

“Think of your banker as an extension of your team, just as your CPA or attorney is part of your advisory team,” says Susan D. Steiger, vice president, commercial loans for Lorain National Bank.

“When we come out to see you, we don’t have the meter running. It’s part of our job to spend good quality time with our clients. We don’t send you a bill at the end of a meeting, so it’s something you should take advantage of,” she says.

And if your banker understands your business, he or she can bring you ideas that make your life easier.

Smart Business spoke with Steiger about how to establish a better working relationship with your lending partner.

How should business owners get their bank involved as they consider making investments?

Get your banker involved early when you’re weighing any kind of investment. Ideally, we’d like to be the first call when you have a major strategic move to consider. Whether an acquisition, buying out a partner or making a capital investment, it’s always better to start the discussion sooner rather than later.

Use us as a sounding board, bounce ideas off of us. We may have advice on structuring the deal or may have seen similar situations with other clients, so use that experience to your advantage.

On the other hand, you may be a nonborrowing client who doesn’t anticipate a need to borrow; maybe you’re just using the bank’s treasury services. It still is wise to begin a regular dialogue with your banker; the relationship ideally should be established before you have a borrowing request. Invest the time to educate your banker about your business, your markets and your industry — it will pay dividends down the road.

What else should a business owner expect from a banking relationship?

You should expect to have access to multiple levels in the organization.  Make sure your banker is introducing you to others, especially top management. Your banker is your primary point of contact, but he or she is only one person and no one person is calling all the shots. Others at the bank are part of your team too, and you’ll benefit from everyone’s experience.  Interaction with all the bank’s decision makers will pay dividends when your next credit request goes before committee.

We can also connect you with other valuable advisors.  It’s our responsibility to introduce you to others, both inside and outside the bank, who have relevant experience.  It might be for treasury management, investments or estate planning solutions, or tax advice — we can give you access to those professionals.

When is it a good time to talk with your banker about problems?

From the get-go, be forthcoming with information, both good and bad. It just is not a good practice to surprise your banker. When something happens seemingly out of nowhere, it raises red flags. We need to know if you’ve just lost a major customer, your new product launch is delayed or you’re in danger of tripping a loan covenant.

It’s a banker’s job to understand your business, and we know things don’t always go as planned. It is much better to deal with it as soon as you know about it because then we can help plan and strategize the next steps. Remember, we’re your advocate inside our organization.

Positive news often requires advance planning, as well. So let us know if you have just landed a major contract or are in negotiations for the purchase of a new warehouse.

How often should you be talking with your bank?

Your banker should be scheduling annual reviews with you. If not, then ask for it. This annual review is part of keeping the lines of communication open, but it also serves as a more formal process to review your year-end financials and the outlook for the coming year as well as to discuss any other needs you might have. But certainly meet with your banker quarterly, if not more frequently, on a more informal basis.

Also, get the other key people at your company involved in these meetings. Banks like to see that you have bench strength on your team and that the whole business isn’t being carried on your shoulders alone.

How crucial is it to negotiate rates?

Price isn’t everything. It is not necessarily the best strategy to negotiate every rate and price down as low as you can go. In the long run, if your banker is forced into that kind of relationship, when things get tough, he or she may not have the staying power to maintain the relationship. The financial relationship has to be a win-win. If the company is doing all of these things to foster a good relationship, it is going to get competitive pricing over the long haul.

I think it’s often frustrating for owners or managers to deal with the bank. They just would rather not do it or would rather delegate it to someone else, perhaps their controller. But that interaction is too important to ignore. The success of any relationship — personal or professional — always comes down to communication; it is the most important variable.

We are people and we are in a people business. Communication over time builds trust, and mutual trust is at the core of any good relationship. Everyone pays lip service to it, but it really is the key.

 

 

 

Susan D. Steiger is vice president, commercial loans for Lorain National Bank. Reach her at (330) 655-1824 or ssteiger@4lnb.com.

Insights Banking & Finance is brought to you by Lorain National Bank

Published in Akron/Canton

The commercial real estate market has been hard hit the last several years. While the residential market has suffered equally, commercial real estate typically falls the hardest and climbs the fastest. It has seen higher highs and lower lows than many other components of the market, but lenders are beginning to loosen their belts as things begin to slowly improve, says Andrea Bucey-Tikkanen, vice president of commercial real estate lending for Lorain National Bank.

“That many commercial lenders feel cautiously encouraged could be an indicator of improvements to the economy as a whole,” says Bucey.

Smart Business spoke with Bucey about the commercial real estate market and how banks’ lending practices have begun to thaw.

How has the overall commercial real estate industry been performing?

This year has brought the beginning of a recovery within the commercial real estate industry. There is more activity than there has been in some time, and more banks, insurance companies and other financing conduits are back at the table and proactively looking to lend. Since mid-2008, the industry has been fraught with frightened lenders and floundering borrowers. This year, there is more confidence and optimism on both sides of the table.

What has been the effect on commercial real estate developers?

Commercial real estate developers are a strong and resilient breed. The recession caused many within the industry to fail —some previously solid, good developers are out of business. However, the survivors are exceptionally creative and nimble and have less competition. That said, the role of government in the banking world is serving as a buffer; banks continue to be closely monitored, which prevents the pendulum from swinging too rapidly. The pace of recovery is measured and slow.

How have current market conditions impacted interest rates?

Many banks have been absent from the lending arena for a protracted period of time, either because they chose to sit on the sidelines or because their own poor performance forced them to do so. Banks with money to lend have had less competition and a borrowing base that needed capital. Simple supply and demand drove cost, and while the overall interest rate indexes have been exceptionally low for years, banks could — and did — pay little heed to the indexes themselves. Base rates may have been low, but spreads were thick. In recent months, that has changed dramatically. Spreads are greatly reduced from where they were as recently as late 2011.

Banks lending on commercial real estate consistently during the recession were doing so in a challenging and cautious market. The spreads applied during the worst of times reflected the level of risk inherent in the transaction. Interest rates are the way in which a bank is compensated for the risks it is taking. A riskier, more challenging market equals a higher price for the end user which, in this case, is the commercial real estate developer.

Has lenders’ behavior helped or hindered the market?

There have been bad cops and good cops in the lending arena. A number of lenders were so panicked by the economic downturn that they looked for ways to decrease any and all real estate assets within their portfolios, whether they were performing or not. To encourage their borrowers to refinance elsewhere, bad cops used any and all efforts, including applying punitive interest rates and failing to extend maturity dates on otherwise performing loans. The good cops were the lenders that provided capital consistently, in many cases helping to resurrect a challenged asset by providing the dollars needed to refinance. A good cop in this recent environment had numerous lending opportunities on good assets that were simply the victim of circumstance.

Have economic times influenced the types of real estate deals being done?

Absolutely. There are developers that have not only succeeded in recent years but thrived.  They responded to challenges by adapting and using the market to their advantage. This can be seen in the number of ‘value add’ projects being financed, which is the purchase — oftentimes for a markedly reduced price — of a floundering project, be it with high vacancy, a failed owner, or a lender desperate to dump an asset. These low prices have provided the developer that has had capital with a unique opportunity to cheaply buy an asset, provide it with a heightened level of attention, affect its turnaround and vastly increase its end value. These types of projects continue to be popular.

Is the recovery sustainable?

There is a ripple effect brought about by the ‘value add’ concept. A landlord who has paid less for his or her asset can charge his or her tenants less rent, which forces neighboring properties to adjust their rental rates downward to maintain tenancy, regardless of the price they paid and the level of debt upon their particular asset. This downward pressure on rents will serve as an ongoing challenge — some would call it a correction — for the foreseeable future.

What actions can a developer take to help improve their odds of success?

There is nothing a banker likes better than an honest borrower. Surviving these past few years has taken talent, perseverance and luck, but it has also forced a level of brutal disclosure. Successful developers have proactively worked with their lenders, disclosing early and regularly fears they have or problems they’re facing. A good lender will listen and help work creatively toward a solution. The end result is mutual success and a healthier market.

Andrea Bucey-Tikkanen is  vice president of commercial real estate lending for Lorain National Bank. Reach her at (216) 520-7310 or abucey@4LNB.com.

Insights Banking & Finance is brought to you by Lorain National Bank

Published in Cleveland

The commercial real estate market has been hard hit the last several years. While the residential market has suffered equally, commercial real estate typically falls the hardest and climbs the fastest. It has seen higher highs and lower lows than many other components of the market, but lenders are beginning to loosen their belts as things begin to slowly improve, says Andrea Bucey-Tikkanen, vice president of commercial real estate lending for Lorain National Bank.

“That many commercial lenders feel cautiously encouraged could be an indicator of improvements to the economy as a whole,” says Bucey.

Smart Business spoke with Bucey about the commercial real estate market and how banks’ lending practices have begun to thaw.

How has the overall commercial real estate industry been performing?

This year has brought the beginning of a recovery within the commercial real estate industry. There is more activity than there has been in some time, and more banks, insurance companies and other financing conduits are back at the table and proactively looking to lend. Since mid-2008, the industry has been fraught with frightened lenders and floundering borrowers. This year, there is more confidence and optimism on both sides of the table.

What has been the effect on commercial real estate developers?

Commercial real estate developers are a strong and resilient breed. The recession caused many within the industry to fail —some previously solid, good developers are out of business. However, the survivors are exceptionally creative and nimble and have less competition. That said, the role of government in the banking world is serving as a buffer; banks continue to be closely monitored, which prevents the pendulum from swinging too rapidly. The pace of recovery is measured and slow.

How have current market conditions impacted interest rates?

Many banks have been absent from the lending arena for a protracted period of time, either because they chose to sit on the sidelines or because their own poor performance forced them to do so. Banks with money to lend have had less competition and a borrowing base that needed capital. Simple supply and demand drove cost, and while the overall interest rate indexes have been exceptionally low for years, banks could — and did — pay little heed to the indexes themselves. Base rates may have been low, but spreads were thick. In recent months, that has changed dramatically. Spreads are greatly reduced from where they were as recently as late 2011.

Banks lending on commercial real estate consistently during the recession were doing so in a challenging and cautious market. The spreads applied during the worst of times reflected the level of risk inherent in the transaction. Interest rates are the way in which a bank is compensated for the risks it is taking. A riskier, more challenging market equals a higher price for the end user which, in this case, is the commercial real estate developer.

Has lenders’ behavior helped or hindered the market?

There have been bad cops and good cops in the lending arena. A number of lenders were so panicked by the economic downturn that they looked for ways to decrease any and all real estate assets within their portfolios, whether they were performing or not. To encourage their borrowers to refinance elsewhere, bad cops used any and all efforts, including applying punitive interest rates and failing to extend maturity dates on otherwise performing loans. The good cops were the lenders that provided capital consistently, in many cases helping to resurrect a challenged asset by providing the dollars needed to refinance. A good cop in this recent environment had numerous lending opportunities on good assets that were simply the victim of circumstance.

Have economic times influenced the types of real estate deals being done?

Absolutely. There are developers that have not only succeeded in recent years but thrived.  They responded to challenges by adapting and using the market to their advantage. This can be seen in the number of ‘value add’ projects being financed, which is the purchase — oftentimes for a markedly reduced price — of a floundering project, be it with high vacancy, a failed owner, or a lender desperate to dump an asset. These low prices have provided the developer that has had capital with a unique opportunity to cheaply buy an asset, provide it with a heightened level of attention, affect its turnaround and vastly increase its end value. These types of projects continue to be popular.

Is the recovery sustainable?

There is a ripple effect brought about by the ‘value add’ concept. A landlord who has paid less for his or her asset can charge his or her tenants less rent, which forces neighboring properties to adjust their rental rates downward to maintain tenancy, regardless of the price they paid and the level of debt upon their particular asset. This downward pressure on rents will serve as an ongoing challenge — some would call it a correction — for the foreseeable future.

What actions can a developer take to help improve their odds of success?

There is nothing a banker likes better than an honest borrower. Surviving these past few years has taken talent, perseverance and luck, but it has also forced a level of brutal disclosure. Successful developers have proactively worked with their lenders, disclosing early and regularly fears they have or problems they’re facing. A good lender will listen and help work creatively toward a solution. The end result is mutual success and a healthier market.

Andrea Bucey-Tikkanen is vice president of commercial real estate lending for Lorain National Bank. Reach her at (216) 520-7310 or abucey@4LNB.com.

Insights Banking & Finance is brought to you by Lorain National Bank

Published in Akron/Canton

When choosing an investment adviser, many people are quick to hand over their money without asking questions. But failing to ask the right questions can lead to choosing an adviser whose philosophy doesn’t match yours and could cost you money, says Patrick Griffin, senior vice president, Lorain National Bank.

“Too often, the first question people ask an adviser is, ‘What should I buy?’” says Griffin. “What you should be asking is, ‘Who am I doing business with?’ This is the person to whom you are turning over your life savings. You have to ask the right questions to find the best person who fits your comfort level.”

Smart Business spoke with Griffin about the six Ps — profile, philosophy, people, process, performance and price — that can help you identify the right adviser for your needs.

When interviewing a prospective adviser, where do you start?

Start with the profile of the organization with which you are potentially going to do business. How much in assets is it responsible for? How many locations does it have? How many clients does the adviser have, and what other resources are available?

If you’re considering a jack of all trades, explore that person’s capabilities and the resources available for helping you with your portfolio. Also ask how many people are employed in the organization and what their roles are.

Finally, the single biggest question is how will your account be impacted if the person you are working with leaves the company? With a smaller organization, if that person leaves, all of that expertise goes out the door. A larger organization might offer greater continuity.

What does an investor need to know about a potential adviser’s philosophy?

This is the single most important thing investors fail to explore. Or if they do ask, the investment person responds, ‘My philosophy is to make you money.’ However, that’s a goal, not a philosophy. The bigger question is how are you going to make me money? Are you going to take risky positions and jeopardize my money? Are you gong to be ultraconservative and never meet my goals? Advisers should be able to clearly articulate their investment philosophy and how they operate their business.

It’s essential to find an adviser whose philosophy matches yours. If you are risk averse, an adviser who purchases gold is not a good fit. If you’re conservative, find a conservative adviser. If you like speculation, you need an ultra-aggressive investment firm.

What questions should an investor ask about people?

Ask about experience, education, professional designations and licenses. Then ask about structure. How are people’s responsibilities and efforts segregated? Is the person a jack of all trades, or is there a division of labor among selling, investing, researching and administration? Also, ask who you will be dealing with once the account is opened. Will it be the person who opened the account or someone else? How many other clients are they responsible for? If it’s hundreds, are you going to get the attention you need?

What is the next step?

The next step is process. Where is your money going to be invested? What is the process? Too often, advisers simply say you should buy X. But how do they know that if they don’t know what you need?

The first thing a professional should do is a needs assessment. Before recommending anything, that person needs to determine your requirements for liquidity, how much you have on hand, your time horizon, your tax situation and your expectations.

Next is an assessment of risk tolerance. What is your appetite for risk? Are you comfortable if your portfolio fluctuates? Are there any constraints on your investments? What will the asset allocation be? What are you going to invest in, and how much? How often will that allocation be rebalanced? Is the adviser going to buy the portfolio and forget it, or will your account be rebalanced so the original allocation remains consistent?

Finally, ask about the decision-making process. There are thousands of companies and mutual funds, so how will the adviser decide what to buy for your portfolio? And what are the criteria for selling?

What does an investor need to know about performance?

Look at the performance over time of the person managing your money and of the investments because, otherwise, you may be building on short-term anomalies that could send you in the wrong direction.

Second, how is performance communicated? By law, the adviser must send statements, but too many companies rely on that alone. Does the adviser meet with you about performance, or do you have to decipher the statement on your own? Will you receive additional information, such as how your portfolio has performed relative to the indices? If you lost 5 percent, but the market is down 20 percent, your adviser has done a good job of protecting your money.

How important is price?

The first thing people ask is what an adviser charges. Everyone gets paid, so if someone says there is no charge, it should be a red flag.

There are three ways to pay. With transactional fees, you pay every time you buy or sell. With asset-based fees, money managers charge a percentage of the value of the account. With advisory fees, the adviser gets a flat fee for advice but doesn’t do the actual investing.

Also ask about fees that you won’t see that may impact your account, such as withdrawal and redemption fees, fund expenses and bond commissions.

If you are handing over your life savings, you have to overcome the awkwardness of asking questions, because you won’t know something is wrong if you don’t ask.

Patrick Griffin is senior vice president at Lorain National Bank. Reach him at (440) 244-7119 or PGriffin@4lnb.com.

Insights Banking & Finance is brought to you by Lorain National Bank

Published in Akron/Canton

Doing business with a large bank may seem like an attractive option for a growing business. But at a large bank, a smaller business can get lost, as some banks are increasingly turning their focus to larger customers, says Kevin Ball, head of commercial lending at Lorain National Bank.

“A local bank can offer a number of unique value propositions, including experienced staff who are familiar with your industry, a flat organizational structure allowing access to decision makers and quick decision making and execution,” says Ball.

Smart Business spoke with Ball about how a local bank can tailor its services to your business’s needs.

How can partnering with a bank whose staff has decades of experience benefit a business?

That kind of experience is necessary in order to quickly understand a business and determine its needs and if the bank can meet those needs. Businesses often complain that banks take their information, then it takes forever for them to come back and make a decision.

If a bank can make a quick decision, even if the answer is no, and explain its reasoning, the relationship can be preserved, leaving the door open for future opportunities with that business. That sounds easy to do, but it is quite rare to find in the banking world.

How can industry-specific experience help a bank serve businesses?

If a bank has done a lot of business in a certain industry, its bankers have built up experience with and knowledge of that industry. Because they see different companies in the same industry and know how things are done, they can provide more than banking solutions; they can also provide insight into that industry and advise a business owner on something he or she may not have thought about.

Bankers at smaller, local banks are also more likely to sit on boards in the community. They are deeply ingrained in the communities they live in and attend functions and get to know the community’s business leaders. This can help them spot potential needs and allow them to talk with potential clients about their needs before they even walk into the bank.

What are some other pieces of the value proposition of a local bank?

A smaller, local bank doesn’t have layers of management and is more streamlined than a national or international bank. Bankers can visit a business owner and bring with them the head of credit, or the president. Those are the decision makers, and that gives them the opportunity to really get to know your business. There aren’t many large banks where you will get that kind of personalized attention.

In addition, smaller banks tend to be heavy participants in the SBA loan programs. That helps them mitigate some of the risks that might be involved in the transactions and can accelerate lending to small businesses.

How can partnering with a local bank help a business owner develop long-term relationships?

At a local bank with experienced bankers, business owners get to know their bankers. At larger banks, people are often trained by rotating them through departments, and business owners may speak with someone different every time they call the bank. Smaller banks are less likely to do that, and with an experienced staff, you are dealing with the same people every time you call, giving you the opportunity to build that relationship.

How do those relationships result in a better match of banking products?

It allows the bank to better tailor products to a business’s needs. The banker has time for work with individual businesses to find out exactly what they want and need, tailoring solutions to that, as opposed to a big bank approach, which often views smaller businesses as too small to do business with.

A lot of big banks say they’re lending, but they’re not. A business owner might find more success with a local bank, which will take the time to understand their business.

Are a local bank’s clients limited to the area?

Not necessarily. With today’s technology, the reach is broader. It’s no longer necessary for banks to have branches on every street corner. Modern treasury management provides the technology to scan items and use an Internet-based system.  If you find a bank that offers great service and solutions that fit your business, its physical location isn’t as important.

How does the market for lending look going forward?

There is currently a good balance of activity and an increasing amount of optimism in the marketplace. Car dealers are having a great year so far, business is booming for some manufacturers and industrial space is starting to get tighter. Although the media tend to focus on negative stories, there are a lot of businesses that are thriving.

Kevin Ball is senior vice president of commercial lending at Lorain National Bank. Reach him at kball@4lnb.com.

Insights Banking & Finance is brought to you by Lorain National Bank

Published in Akron/Canton

When choosing an investment adviser, many people are quick to hand over their money without asking questions. But failing to ask the right questions can lead to choosing an adviser whose philosophy doesn’t match yours and could cost you money, says Patrick Griffin, senior vice president, Lorain National Bank.

“Too often, the first question people ask an adviser is, ‘What should I buy?’” says Griffin. “What you should be asking is, ‘Who am I doing business with?’ This is the person to whom you are turning over your life savings. You have to ask the right questions to find the best person who fits your comfort level.”

Smart Business spoke with Griffin about the six Ps — profile, philosophy, people, process, performance and price — that can help you identify the right adviser for your needs.

When interviewing a prospective adviser, where do you start?

Start with the profile of the organization with which you are potentially going to do business. How much in assets is it responsible for? How many locations does it have? How many clients does the adviser have, and what other resources are available?

If you’re considering a jack of all trades, explore that person’s capabilities and the resources available for helping you with your portfolio. Also ask how many people are employed in the organization and what their roles are.

Finally, the single biggest question is how will your account be impacted if the person you are working with leaves the company? With a smaller organization, if that person leaves, all of that expertise goes out the door. A larger organization might offer greater continuity.

What does an investor need to know about a potential adviser’s philosophy?

This is the single most important thing investors fail to explore. Or if they do ask, the investment person responds, ‘My philosophy is to make you money.’ However, that’s a goal, not a philosophy. The bigger question is how are you going to make me money? Are you going to take risky positions and jeopardize my money? Are you gong to be ultraconservative and never meet my goals? Advisers should be able to clearly articulate their investment philosophy and how they operate their business.

It’s essential to find an adviser whose philosophy matches yours. If you are risk averse, an adviser who purchases gold is not a good fit. If you’re conservative, find a conservative adviser. If you like speculation, you need an ultra-aggressive investment firm.

What questions should an investor ask about people?

Ask about experience, education, professional designations and licenses. Then ask about structure. How are people’s responsibilities and efforts segregated? Is the person a jack of all trades, or is there a division of labor among selling, investing, researching and administration? Also, ask who you will be dealing with once the account is opened. Will it be the person who opened the account or someone else? How many other clients are they responsible for? If it’s hundreds, are you going to get the attention you need?

What is the next step?

The next step is process. Where is your money going to be invested? What is the process? Too often, advisers simply say you should buy X. But how do they know that if they don’t know what you need?

The first thing a professional should do is a needs assessment. Before recommending anything, that person needs to determine your requirements for liquidity, how much you have on hand, your time horizon, your tax situation and your expectations.

Next is an assessment of risk tolerance. What is your appetite for risk? Are you comfortable if your portfolio fluctuates? Are there any constraints on your investments? What will the asset allocation be? What are you going to invest in, and how much? How often will that allocation be rebalanced? Is the adviser going to buy the portfolio and forget it, or will your account be rebalanced so the original allocation remains consistent?

Finally, ask about the decision-making process. There are thousands of companies and mutual funds, so how will the adviser decide what to buy for your portfolio? And what are the criteria for selling?

What does an investor need to know about performance?

Look at the performance over time of the person managing your money and of the investments because, otherwise, you may be building on short-term anomalies that could send you in the wrong direction.

Second, how is performance communicated? By law, the adviser must send statements, but too many companies rely on that alone. Does the adviser meet with you about performance, or do you have to decipher the statement on your own? Will you receive additional information, such as how your portfolio has performed relative to the indices? If you lost 5 percent, but the market is down 20 percent, your adviser has done a good job of protecting your money.

How important is price?

The first thing people ask is what an adviser charges. Everyone gets paid, so if someone says there is no charge, it should be a red flag.

There are three ways to pay. With transactional fees, you pay every time you buy or sell. With asset-based fees, money managers charge a percentage of the value of the account. With advisory fees, the adviser gets a flat fee for advice but doesn’t do the actual investing.

Also ask about fees that you won’t see that may impact your account, such as withdrawal and redemption fees, fund expenses and bond commissions.

If you are handing over your life savings, you have to overcome the awkwardness of asking questions, because you won’t know something is wrong if you don’t ask.

Patrick Griffin is senior vice president at Lorain National Bank. Reach him at (440) 244-7119 or PGriffin@4lnb.com.

Published in Akron/Canton