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Reviewed by Martin Fridson

In a revealing article this past August in The Wall Street Journal, “Why I Fired My Financial Advisor,” Kevin Noblet painfully recounts why he terminated his financial advisor after just nine months. Despite being a professional who satisfied all of Noblet’s criteria—a lead advisor with extensive experience at a small firm with a spotless reputation and a stable client base—the advisor dumped the portfolio’s holdings without regard to tax consequences, replaced them with ultrahigh-cost funds, and ran up losses through ill-considered market timing.

According to Beyer, founder of the Institute for Private Investors, a global membership network for wealthy families, mutually agreed-upon expectations are the key to a successful professional relationship. Hence, her highly detailed sample advisory agreement, which specifies duties going far beyond picking winning investments—to developing an investment policy statement, educating family members, and devising strategies for minimizing taxes.

Beyer’s advice is occasionally blunt—and consistently useful. She comes down hard on advisors who try to impress prospective clients with technical jargon. Her recommended response is, “Can you try that in English?” The book is especially informative about conflicts of interest of the kind that may have induced Noblet’s advisor to favor high-cost mutual funds. The author encourages readers to ask whether their advisors are being paid to select a particular investment product. To get an honest answer, she adds, request a written reply.

She reports that one advisor wowed a potential client by displaying eye-popping returns over a three-year period. The catch was that the measurement began at the market bottom in March 2009. To avoid getting hoodwinked, she suggests, interview several advisors and ask them all the same questions. In this case, the investor should have ascertained how each firm performed in the post-financial-crisis rebound.

Or suppose an advisor trots out the cliché, “We eat our own cooking.” (Translation: “I personally own the same investments I recommend to you.”) Consider the fact that the advisor’s risk tolerance may differ from yours. One question might be, “But how is your mother’s portfolio invested?”

Thoroughly vetting an advisor reduces the risk of neglect, hidden fees, and egregious conflicts of interest. Misconduct by advisors, however, is not the only sort of problem that arises in advisor-client relationships. Beyer notes that clients ensure inferior service when they demand unrealistically low fees. The only way that advisors can then make a profit serving such accounts is to minimize their effort.

Reasonably compensated advisors can more than earn their fees by talking their clients out of buying at the top and selling at the bottom. They render a further service by dissuading clients from switching between funds too frequently. But beware inflated claims: Beyer cites research showing that over a 10-year span, 96% of top-quartile, large-cap equity managers spent a stretch of at least three years in the bottom half of the performance rankings.

The author emphasizes that even if you hire an expert to carry out your plans, you have to be the CEO of your wealth. You will improve your chances of success if you find an advisor who provides the brand of well-informed straight talk that characterizes this book. To extract as much of the book’s wisdom as possible, make sure to read the 10 pages of endnotes. There you will find useful links to research on such practical issues as determining risk tolerance, advisory fees, and the pros and cons of indexing.