Many people have find their current financial advisors by using the ones their parents have used for awhile, or found them through a large national firm. However you get connected with an advisor, it’s worth evaluating and reevaluating the relationship through the lens of trust. When you’re working with someone to help manage your finances I don’t think it’s incendiary of me to say that that person should be trustworthy and be working for your benefit.
At the end of the day you should be able to get a sense of whether someone is trustworthy or simply a good salesperson. The difference is that one holds up to scrutiny and questioning and the other tends to wilt under examination. I’ve written a number of articles on finding a good advisor, but wanted to spend today simply focusing on trust because of how central it is to the entire relationship.
Honesty
Obviously everyone wants to work with honest people, regardless of the profession. Nobody appreciates being lied to in any situation, and especially not when it comes to your hard earned wealth. If your physician told you everything was fine when there was a problem simply because they didn’t want you to switch providers you would be livid. Yet for some reason, I’ve seen people being told that things are fine with their retirement accounts when in fact they’re paying more fees than they’re earning. Many advisors are usually interested in acquiring your business and are relying on you not understanding what’s happening and not willing to go through the hassle of moving your assets away.
That’s not the mindset of someone I would trust with my money, however biased I am. Now, not everyone who works for a large national/multinational firms thinks like that, but in my experience from that world the great majority do operate that way. In fact, they are trained to operate that way because it’s usually best for the company whether the advisor stays or not. I’m not saying this to toot my own horn that I don’t work that way (although, toot toot) but to give you somewhat of an “insider’s” look into the financial services industry. If you find someone who you truly trust, is honest, and works in your best interest at every turn then hang on to them regardless of where they work. But, there are less barriers to greedy behavior and dishonesty in those larger firms so make sure you do your due diligence.
Education
I’ve mentioned that many advisors rely on their clients not understanding what they’re doing and it’s because there’s a severe lack of financial education in this country. Just as I don’t have the education or training necessary to diagnose a patient it’s also likely that you haven’t spent the time learning how best to construct a portfolio or run Monte Carlo simulations. Because there is so much specialization in today’s world most people don’t have the time or energy to learn much beyond their specific focus. To that end, I see my role as a financial educator as well as an advisor because the end goal is to give you something you apply throughout the rest of your life. It’s why I’ve started writing the Financial Literacy Friday columns, to give people some baseline knowledge about the world of finance.
The most important thing however is that education makes for better clients, not worse clients. When I was working at a large firm, there was no emphasis on education because ignorant people don’t question decisions being made for them. In my experience since going independent it’s that the ability to provide education leads to one of two outcomes. The first is that the prospect feels better qualified to make decisions on their own and they go off happy to do everything themselves. The second is that prospects become more engaged in the process and are interested in learning more about how things work which leads to better work being done between us. Better educated clients leads to a better and more trusting relationship between client and advisor as it allows you to both operate on similar levels and see eye to eye on decisions instead of one person holding most of the knowledge.
Quality of Questions
Another pillar of a trusting relationship between client and advisor is asking the right questions. If you’re going to engage with an advisor who you will trust with your finances, they better know you pretty well. This isn’t about getting the surface information or just the asset amounts, but are they digging deeper and trying to understand your perspectives on money and what goals you want to reach? There is a large difference in knowing the situation and knowing the person. As an advisor who only knows your situation, I’ll be able to come up with a strategy for that situation and it could work very well. However, if your situation changes as they often do, you’ll be in the wrong strategy and we’ll have to start all over again. If I know you as a person, I can create a strategy for you that will likely be able to withstand multiple changes in situation because it’s based on who you are.
Working with an advisor should go beyond the numbers and retirement simulations, but really get to the heart of what you want your financial experience to be. Does your advisor ask questions about who you are? Do they listen to the answers and adjust according to what they hear? This relationship should be about more than sending you a form letter on your birthday or whatever big date, it should be about understanding your struggles and triumphs and knowing what values you hold dear. I know this is starting to sound corny, but I truly believe that a good advisor/client relationship needs to include an understanding of the client’s perspectives and the client’s trust in the advisor and that’s gained by the type of questions they ask and the answers you provide.
So, after having looked at a few pillars of what creates a trusting relationship hopefully it becomes a bit clearer how important that trust is to a great client/advisor relationship. Trust is what provides that objective opinion about current events and what can talk you out of making detrimental decisions. In my opinion, trust is the most important component in creating and maintaining a long term and successful relationship. However, that’s my opinion, I’m curious to hear your opinions and experiences. Do you have an advisor you truly trust? Do you not? What do you feel is the most important aspect of this relationship?
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