Why You Can't Find a Good Financial Advisor

Are you wealthy? Are your friends wealthy? Do you know many wealthy people?

Chances are you are not wealthy, nor are many of the people you know. Nevertheless, I am certain you could benefit from good, unbiased financial advice. Unfortunately the current primary financial advice practice models are not designed to provide you financial advice. Most financial advice practices focus on high net worth individuals because these types of clients can be the most profitable.

This means you are left to choose from financial advisors who are peddling product, who are not required to work in your best interest and who may harm you financial well-being despite best of intentions. 

This strikes me as deeply wrong. The financial advice industry will remain a marginal and unimportant profession until the industry can figure out how to provide access to good financial advice to the vast majority of the population (meaning non-wealthy individuals and families.) Financial advisors and financial planners can provide tremendously valuable and life-impacting services. These services can benefit non-wealthy people as much, if not more, than wealthy people.

There likely needs to be a fundamental shift in the way financial advice is delivered in order to be able to serve you. Currently the basic practice model requires large time and resource commitments of professionals to provide financial advice. This creates the desire to help high net worth individuals because the cost of helping others exceeds the revenue that can be generated. 

There are some professionals trying to figure how to create a new model that can deliver advice to all. More practices are including hourly services that can be offered to people unable to pay the full financial planning fees generally charged. The Garrett Planning Network includes many professionals dedicated to offering services on an hourly basis to people of all income and net worth levels. MyFinancialAdvice.com is a newer offering which is trying to dramatically change the way advice is delivered to provide access to many more people.

These ideas and others need to be discussed by more financial advice professionals. The discourse needs to grow and more professionals need to become committed to finding a different way. This will be a central theme of my financial planning practice should I choose to begin one. It is something I believe in strongly.

Unfortunately, until more new models are developed and more professionals fill this need, you will be very limited in finding a good financial advisor.

True Financial Planning: Where It Begins

What is that one goal in your life that drives you every day; that one thing that, if achieved, will allow you to feel you have lived a life fulfilled? What is that goal that will give everything purpose?

While it's in your head:

      - Tell your spouse, a family member or friend about the goal
      - Write the goal down
      - State the goal out load even if only to yourself

Now that you've made the goal real by telling someone about it, writing it down and saying it out load; begin to plan how to achieve that goal and how to do so as quickly as possible. There is nothing more important than realize that goal.

Call you financial advisor and tell them that this is the one thing you need to plan for first, and all the other goals need to either be subordinate or support reaching that goal. This will help you create a financial plan which you are truly committed to and that you will want to achieve. 

If your financial advisor tries to convince you that this goal is not worthwhile or a waste of money or silly, I suggest you begin interviewing new advisors. Nothing could be more important than achieving the one thing which gives your life purpose! There are advisors who would be happy and excited to help you achieve it.

Begin today, don't delay. Your happiness, contentment and fulfillment await.

Your Financial Advisor Is Human

I don't make many guarantees, but I am going to guarantee you one thing with absolute certainty. This guarantee has tremendous impact on the investment advice you receive from an advisor. 

Many financial advisors and investment advisors I have met with seem to believe they are not human. It seems that they believe they are able to make financial decision purely based on rational factors and unaffected by emotion. They are under the impression that they do not fall prey to the same snap reactions when there is a major stock market drop that their clients do. They are wrong.

Financial advisors and investment advisors are human. They experience emotions and react to those emotions just like other humans. Fear and panic cloud rational decision-making for an advisor no differently than for anyone else. These emotions can lead to poor decision and mistakes being made on behalf of clients. You may even have heard your advisor tell you they just had a gut feeling about some investment, either to buy or sell. A gut feeling is not rational, it's emotional. Advisors are also human and therefore prone to make similar errors to other humans.

Your advisor may choose to sell investments at poor times because they watch the markets collapsing. They may become wrapped up in the mania of a strong bull market and buy something as prices are rapidly increasing. They are human and subject to making these same mistakes, particularly if the advisor believes in actively managing your investments.

This emotion is not a bad thing, however. If they were not humans, good financial advisors could not empathize with their clients and could not have genuine interesting and truly care about their clients' well being. You want your advisor to be human, to have emotions and to understand your emotions. It can lead to a deeper and more trusting relationship between you and your advisor.

What is important is that you recognize that your advisor is human and that they can make the same errors you do. Good advisors realize this fact and put in place systems to help prevent them from acting on emotion; they may believe in a passive investment approach which does not react to market movements, they may have a multi-person process to make portfolio changes, or they may employ some other mechanism.

You, as a client, can your advisor recognize their own emotions as well. During the market collapse in the second half of 2008, I worked with a client who would call me almost daily asking if he should make any portfolio changes to some mutual funds we did not manage for him. Each day there was a major market movement (and there were many) he called to discuss, but he clearly had made up his mind before the call. It dawned on me after several calls that he was not really asking for our advice, but was instead gauging our emotions and making sure we were not making drastic changes to his portfolio based on those emotions. He would finish each call by telling me he was happy we were not changing anything and asked that I call him first should we decide to do so. 

You can do the same with your advisor. Call and bring up your fear. Listen to your advisor's response and determine if they are trying to make decisions while under the influence of strong emotions. If you think they are, call them on it. Ask them to write out their rationale for their decisions and the impact those have on your long-term financial well-being in an email and send it to you. This will force them to think more rationally and may impact the decision they are making. You are in this together. The advisor should be trying to help you recognize your emotions and the influence this has on your decision-making, and you need to do so on return. You are both humans.

Now, to tell you my guarantee. I guarantee your advisor is human. No matter what they tell you regarding their ability to work rationally and logically, they are human and subject to the same errors that you might make. They need to understand the importance this has and you need to as well. Advisors cannot and will not be perfect. They will make mistakes. But by working closely with clients in an open and trusting manner, many of these mistakes can be avoided.

Why I Now Believe In Selling To Family

I spent the past two days attending my grandfather's memorial and funeral, and I learned a valuable lesson about being a financial planner over these two days. When I began in the financial services industry, I was advised to offer my services to my family and friends (my natural market.) Prior to this weekend, I had never felt comfortable approaching family members about helping them with their financial well-being. I now feel very differently about this.

It was always my opinion that offering my services to family members was intrusive and broke family boundaries about money issues. Particularly when I first entered the industry, I was uncomfortable offering services to my family (or anyone else for that matter) without really knowing what I was doing. I did not want to harm family members' finances if they agreed to work with me. What I never counted on or recognized was that I may actually feel responsibility later on if a family member had financial struggles created by working with an alternative financial advisor. 

As this weekend proceeded, I sat recollecting several months ago when I stumbled upon several annuity statements in my grandmother's condo. I immediately began to question the appropriateness of these policies due to my grandparents ages. Upon inspecting the statements, I noticed a couple of the policies appeared to have been sold withing the past six years, when my grandparents would have been in their eighties. I did not review very closely, but my instant sense was that these policy sales were likely not in my grandparents best interest. However, I did not say anything to my grandmother and did nothing.

As I reflected on this discovery at the funeral, I realized I was carrying some guilt about not discovery of those policies. I felt that I should have helped my grandparents earlier with their financial well-being and that way may have prevented poor product sales from occurring. I should have offered my help. This guilt was likely the reason I had not said anything a couple months ago. Frankly, I do not believe my grandmother's financial situation is poor despite these annuities (I may even find them appropriate when I inspect more thoroughly), nevertheless I should have offered my expertise earlier despite a bit of discomfort it may have caused. Things could have turned out very poorly and I may have been able to prevent that from occurring. I recognize the poor advice being delivered to people, and should offer good advice to my family members.

I share this story for one reasons. I hope that someone reading this who feels similarly awkward about approaching family will be able to do overcome that feeling and approach family in good faith to prevent harm coming to their family members. I had to learn this lesson experientially; maybe someone else will not have to do so. Help your family before a poorly trained or unethical financial advisor harms their finances. Feel comfortable providing your family good financial advice so that when you sit at a funeral (or other family gathering) you can know their survivors are secure. Break the taboo of financial discussions among your family because the harm that could befall them from an unscrupulous financial salesperson far outweighs any ill-will that breaking that taboo might cause.

And if you are the family member being approached, consider the motivation behind the approach. You may be inclined to think the individual is just trying to sell you something, but they may feel a responsibility to help family. You have to judge this for yourself. My goal is to help you recognize that there may be a good reason this individual wants to work with you.

The Introverted Financial Planner

Today I have no rant, no warnings, no inside scoop; I simply want to ask a question. 
I have found my blogging experience over the past two months tremendously rewarding. Sharing some of my learning has helped me gain a sense of importance and allowed me to reconnect with a profession I am truly passionate about. I love financial planning and the positive impact it can have on people's lives when done well. My blogging and reconnecting has helped rekindle that passion. It has made it clear to me that I really want to get back to the work of helping people make well-considered financial decisions. So today I want to pose a question to my readers...this is the question preventing me from moving forward quickly trying to build a small financial planning practice. The question is the following:
"Can an introvert be successful building a financial planning practice with no client-base?"
My introversion is strong. I find it very difficult to involve myself in discussions with large groups of people or introduce myself to someone without a predetermined discussion topic. I see this as a major block to creating a network to offer potential client introductions. However, I enjoy presenting before large groups and I love sitting with clients and discussing their financial well-being and helping them make well-considered financial decisions. Professionally I have experienced nothing more enjoyable than that interaction. My introversion does not impact my ability to work with people directly and provide outstanding advice.
I have absolute certainty that the service I would put together would benefit people greatly, and that I would have a profound & positive impact in people's lives. My practice would bring great value to clients. I have put many of my ideas out there on this blog already. But that one question keeps nagging me. Can an introvert be successful building a financial planning practice with no client-base? Can I find clients?
I do not desire to build a large practice. I want to work with a few clients whom I become intimately familiar with, who implicitly trust me and I them, and who I count among my friends. I do not look to achieve great wealth, simply a reasonable level of comfort to live the life my wife and I have planned. The client-acquisition bar is low, but there is still a need for clients.
Are you an introverted financial planner who has been able to do it? Have you seen someone else do it? What are your thoughts? Do you have suggestions? Your feedback is greatly appreciated. If you would feel more comfortable responding privately, please feel free to email me at livingfinanciallyaware@gmail.com.
Enjoy your weekend. I hope wherever you are, you are getting the same type of beautiful weather we are experiencing in northeast Wisconsin.

All Financial Advice Is Wrong - Upset The Industry Series Part 3

Over the past couple blog posts I have spent considerable time attacking the "investment performance" value-proposition many financial advisors offer their clients. In part 3 of my Upset the Industry Series, I am going to discuss where this investment focus comes from along with an insurance focus many financial advisors employ and why I fundamentally believe this needs to change to truly help you as a client. As always, my writing in this series remains a stream-of-consciousness exercise and barely edited.
I believe the focus on investments and insurance in the financial advisory world stems from the history of the industry. Financial advisors and planners evolved out of the insurance and investment world, as a group of stock brokers and insurance salesmen recognized the need to help their clients more fully than simply selling them insurance and investment products. As the financial advisory industry grew, more people bought into the concept of helping clients with more of their financial lives by adding a discussion about goals, taxation, cash flow and estate planning. Ultimately, however, many of these people entered their careers working for insurance and investment firms where their compensation was largely based on the sale of insurance and investment products. This early training in insurance and investments created a memory in financial advisors that these two pieces were more important than other items.
I additionally believe that the focus is created because it is easier to sell insurance and investment products than other elements of the financial planning process. Fear can be used to sell insurance. Greed can be used to sell investments. But selling budgeting services is far more difficult. Convincing someone that there is great power in discussing their deepest goals and crafting a path to reach those seems a bit airy and impractical. So the focus has remained on the easy sale, despite their relative unimportance.
Investments and insurance do have an important place in the financial planning process. Both play a role in helping clients reach their goals and dreams. But they are certainly not the most important elements and do not warrant the significantly overweighted focus they receive in the financial advisory world. In the long-run, poor investment decisions can hurt your financial well-being tremendously, but the likelihood that good investment decisions increase your financial well-being is very low. Insurance plays an important role to transfer some risk you are not willing to bear yourself, but the best result with insurance is that you waste the premiums paid and never need the insurance. Both are important, but neither really moves you forward.
There are elements which do call for a greater focus in the financial planning process. Having a deep understanding of your values and goals leads to planning which you are committed to and want to achieve. Without understanding your values and goals, the financial advice you receive will be wrong. Focusing on how you spend your money and whether your spending matches your values can tremendously improve you financial well-being. The greatest investment ideas will have little impact if you are unable to save money to place in these investments. Understanding your relationship with money (and you do have a relationship with money) will help you understand your financial decision-making process better and allow you to make well-informed decisions in the future. These are the areas where financial advisors should be focusing. They are not sexy and do not offer the hope of becoming wealthy overnight, but they have meaningful and controllable impact on your financial well-being. 
As long as investments and insurance remain the primary focus of the financial advisory world, the financial advice you receive will remain wrong. That advice simply cannot be correct without really knowing you. How could anyone offer an appropriate investment portfolio without understanding what you hope to achieve and what type of risk you are willing to accept? They can't! How can insurance products be recommended without knowing what risks you are comfortable living with and which you want to pay money to pass to an insurance company? They can't! If you are offered investment or insurance products without the advisor getting to know you deeply, you are being offered products based on assumptions the advisor is making about you. The most likely investment assumption is that you want to have the highest return possible at any cost. The most likely insurance assumption is that you want to purchase as much insurance and transfer as much risk as you can afford.This may be true for you, but I submit that a financial advisor should know this with certainty before making the assumption. Assumptions have a habit of proving incorrect in the long-run.
All financial advice is wrong.


 It bears mentioning that there are already financial advisors who are moving in this direction. They are a part of a movement known as financial life planning. Advisors in this movement are committed to getting to know your values and goals deeply, then helping you craft a path to reach those goals while respecting your values. A couple resources for locating one of these advisors include the Kinder Institute of Life Planning and Money Quotient.

All The Investment Talk Is Really Tiring

I am tired. I woke up at my usual time around 5AM this morning and have felt very tired ever since. As I sat at my desk drinking my coffee, I recognized that while I am physically tired I am also mentally tired of seeing all the wasted time and effort going into investment research. In my Twitter stream, on the television, in the newspaper and in virtually every other form of media I get bombarded with the next big investment or the latest technique for becoming wealthy quickly and with little effort. I see financial advisors and investment advisors discussing technical analysis and fundamental analysis, insurance salespeople discussing ways to guarantee not losing money, and infomercials hawking the next great trading system. It's all such a waste of time, effort and money. My focus is on having a profound, positive impact in people's lives...squeaking out a bit more yield on an investment or savings account, does not do this.

One would think we would have learned by now that this pursuit of overnight wealth has done nothing but lead to bubbles and collapses, has pushed people over the brink of financial ruin, and has only benefited the people selling the systems. Over the past decade we have seen too many bubbles all in this pursuit of wealth. The dot.com bubble, the housing bubble, and now likely the gold bubble? None of this has pushed us forward individually or collectively. Collectively we live in fear of the next major financial collapse, yet we are still looking for a new way to easy wealth. I am tired of it.

Wall Street plays this game, and pushes the "get rich" desire at every turn. A great many financial advisors are accomplices in this, also. These advisors look for ways to increase return on investments, spend time researching the next big thing, and help clients buy more stuff; all without focusing on what is truly important to those clients. Advisors need a major paradigm shift to recognize that we are in the business of helping people live their lives more fully and freely. Worrying about investment return does not accomplish this. I am tired of it

If we could redirect even just a small portion of the vast resources spent on getting rich into financial literacy education, the impact could be tremendous. Helping people understand the fundamentals of budgeting, taxation and investing would impact their financial well-being far more than any brilliant investment idea from Wall Street, a financial advisor, or a slick infomercial played late at night. We are a people who are physically unhealthy and we are a people who are financially unhealthy. We do not accept financial responsibility, we do not understand basic financial truisms, and we have immeasurable dollars being spent perpetuating this lack of education. I am tired of it.

Forget the get-rick quick schemes. Large financial institutions are selling you snake-oil. No matter how much research and insight and technical words used, they are selling you a falsehood. Their schemes will make them wealthier and a few clients will strike it rich, but the vast majority will receive no benefit and likely have their financial well-being hurt. Focus on what you can control (e.g. your spending, focusing on what you truly value, not taking needless investment risk, etc...) and you will be on a much better road to financial well-being than any investment scheme can offer you.

I am really, really tired. I am tired and not editing this post. I am tired.

Seeking Investment Outperformance Is Useless

I enjoy challenging myself and thought I would use my blog as a challenge today. I am a wordy writer, so challenged myself to write a post that uses only one paragraph and less than one hundred words (preamble included) yet sends a valuable, powerful statement. Now let me challenge your thinking. If you are trying to beat the market or strike it rich with your investments...stop! You're playing the lottery and will fail. If you're an advisor selling investment outperformance...stop! You cannot deliver alpha, and can offer so much more. Seeking return is high cost and low probability.

Beware The Honest Salesperson

Who do you think has the potential to do more damage; a salesperson who does not care about the welfare of the people he sells to or a salesperson who cares but makes mistakes due to a lack of knowledge and the system he operates under?

I have met and spoken with many financial advisors during my time in the financial services industry. There are many good, well-educated advisors truly working to help their clients in meaningful, positive ways. There are some very bad advisors who do not have any interest in helping people, but are only concerned with lining their wallets and increasing their own investment accounts. Then there are the well-intentioned advisors, those who do really want to help people but are placed in a system which makes it difficult for them to do so. Additionally, many of these advisors do not have the training or experience to recognize the conflicts and the frequent bad financial advice they dispense. It is these advisors who I fear do the most harm to clients in the long run.

I believe the frauds will eventually be exposed. They will dupe a litigious client who makes certain of that. Or they will run afoul of regulators under who's jurisdiction they fall. Many people will intuitively recognize these people to be dishonest and self-interested. Some people will be hurt by their actions, but eventually they will be stopped by one means or another.

The well-intentioned advisor who works for a sales organization is who I truly fear. These people want to help; they want to provide good service and impact people's lives positively. When they meet with people they can speak with sincerity and conviction because they believe what they say. They will tell clients that they are able to manage their conflicts of interest and mean it. They will inform their clients that they are not bound to only sell company product. They will be honest when they say these things. However, due to a lack of experience in different business models or training in financial advice, many of them will ultimately provide bad and wrong financial advice.

In my brief stint with a large insurance company, I was assured on several occasions that the way we operated was the same as every other firm, whether a small financial planning firm or another large financial services company. I was informed that the "boutique" fee-only firms were still sales organizations. I think the people who told me this truly believed it. They did not know any better having never experienced working in a professional, fiduciary financial planning firm.

I was also told to try to help my clients, but then reminded to not forget about my sales quotes and the benefits and incentives riding on meeting those quotas. I was required to attend seminars discussing the benefits of variable annuities and they ways they could help virtually all people, with little focus on the costs. The system, it seems, was designed to make me believe that I was giving good financial advice and trying to help clients even while I was selling expensive and possibly inappropriate products. I did not know what I did not know.

There are many other financial advisors in the same situation. They are well-intentioned, helpful individuals. They may have a deep desire to give you good financial advice and will be very authentic. They will not mean to harm your financial well-being, but there is a good chance that will happen anyway. 

I believe you can find very good financial advisors in large insurance and financial services firms...I have met some. But the deck is stacked against you. Between the outright frauds and the well-intentioned advisors, you may find yourself working with someone who actually harms you. Working with an independent advisor is no guarantee that you work with a good financial advisor. You can still find the frauds and well-intentioned advisors here, but you increase the odds in your favor.

In the financial services industry, you need to increase the odds in your favor. There are so many forces working against you, you cannot afford to increase the risk that your financial advisor works against your financial well-being, whether they do so intentional or not.

Wall Street & Insurance Companies Are Important – Just Not For You

Lest I have given the impression that I don’t believe in the importance of insurance companies and the large banking/investment firms, this is not the case. I believe they both play critical roles in our economy, roles vital to our progress and safety. Their primary lines of business are necessary to our economy. My problem arises when they decide to play outside their primary businesses and give the perception of wanting to “help” the American public.

Investment firms and large banks are critical in capital formation and lending necessary for businesses to operate in our economy. They provide funding for start-ups to be able to innovate. They help firms raise capital in public markets to continue to expand operations. They offer necessary lending facilities to help organizations meet cash flow needs and be able to write payroll checks. They allow individuals to purchase homes by making mortgages available. These functions are critical to our economy and should not be minimized.

Insurance companies help mitigate many forms of risk for organizations and individuals. They create and provide products which allow us to be protected at home and in our businesses. They provide protection that allow organizations to continue functioning after the death of critical members or destruction of property. They allow us to collectively share some of our daily risk thereby reducing the cost of that risk. These functions are necessary for our lives and businesses to be able to function in an orderly manner despite the risks which surround us.

The problem, in my view, arises when these companies move from their product creation and distribution roles into advice delivery roles. Dispensing good advice takes a very different mind frame than does distributing product, a mind frame which these companies have been unwilling to understand. If they understood, they would not fight the requirement that they work in their clients’ best interests. Advice delivery requires a willingness to allow profit-motives to fall secondary to the desire to truly help people. Product distribution can be focused on helping people, but it remains profit-motivated first. These companies should remain out of the advice delivery business, because they are not working for you. They should stick to their core, critical roles and allow financial advice to be dispensed by professionals who are independent of this distribution function.

The financial planning industry began in and formed out of the insurance and investment/banking industries. The financial planning movement began because insurance and investment professionals recognized that they needed to look at a client’s life more deeply than their industries had been doing. Many of these early pioneers also recognized that they needed to be independent of these distribution channels to truly work for their clients. Insurance companies and investment firms understood a new revenue stream was developing and have worked hard to capitalize on this revenue stream. They did not participate in the financial planning movement to help people and work in their clients’ best interests, but to capture a new way to sell products. Insurance companies and investment firms should stick with their core roles and allow fiduciary financial planners to dispense financial advice.

Knowing these roles should help you make well-informed decisions about whom you wish to work with when seeking financial advice.

Greed and Fear and Freedom: A Guide For Selecting A Financial Professional

I believe there is a very simple, if occasionally imperfect, tool for you to determine whether a financial planner, financial advisor, investment advisor or stock broker is working for you or not. While there are certainly exceptions to this rule, it should offer you a quick guide to decide whether to continue a relationship with a financial professional. You need to do no more than determine whether you are being sold greed, fear or freedom. The answer to that can dramatically help you understand what type of individual you are working with.

Greed is sold by Wall Street, by financial professionals who want to exploit your desire to become wealthy quickly and to have more and more money. They are selling you false hope that they can help you pick that one investment which can make you rich overnight, the investment that will change your life with little work on your part. They are playing on the greed that lives within many of us. They are selling a falsehood, one designed to increase their wealth with little regard for your own. If you are being sold greed, beware the seller and the product.

Fear is sold by insurance companies. They prey on the fear that you will run out of money before you die, on the fear that you will die and leave your family destitute, on the fear that you will lose all your wealth by investing directly in stocks and bonds.  Their marketing materials and sales presentations are designed to build your fears and anxieties and to convince you to act on those fears by purchasing products. The fears they play are often steeped in truth, but the products recommended often come at costs far too high to be worth the protection offered. Your fear is used to increase their wealth. If you are being sold fear, beware the seller and the product.

Freedom is sold by financial planners who truly work in your best interest. They sell a service designed to provide you the freedom to do with your finances what you most value. They offer to help you recognize your freedom to live the life you truly want to lead. If they dabble in greed, it is likely to help you recognize where your greed may be inhibiting your freedom. If they touch on fear, it may be to help you choose strategies to minimize those fears to allow you to regain your freedom. They do not use greed and fear as a sales tool. If you are being sold freedom, rejoice that you have likely met someone who is working for you.

What are you being sold: greed, fear or freedom? Greed and fear are used to get you to make ill-advised, emotional decisions. Freedom is the most difficult “sale” to make requiring a much higher cognitive analysis, but the impact of working with someone offering you freedom can be dramatically positive.

All Financial Advice is Wrong – Upset The Industry Series Part 2

Yesterday I ran across an article titled Financial Advisor Training – Real World Advice From a Successful CFP® on the WealthPilgrim.com blog. The article gives a good, accurate description of the entry-path into the financial advisory world. The path described is how most of the individuals I have met enter the financial services industry. And I wonder how education and mentored training cannot be an important part of the development of a financial planning career? I thought this article would provide a good lead-in into Part 2 (link to Part 1 here) of my barely-edited, stream-of-consciousness Upset the Industry Series discussing why all financial advice is wrong, in this case why new entrants are bound to provide financial advice which is wrong.

Financial planners and advisors are destined to make the same errors and impact people’s lives negatively over and over again. This is because there is a fundamental flaw in the entry-path for an individual hoping to work in this industry. It creates a perpetual cycle of learning and relearning the same mistakes, giving the same wrong advice and not bringing the industry or profession forward. Would you ever consider hiring a doctor who learned to practice medicine from study of a book for a month or two followed by trial and error on patients? Would you allow your children to be taught by teachers with no training nor formal education, but only on the job training provided by textbook publishers? I suspect the answer to these questions is negative, yet this is the risk you take every time you work with a financial advisor.

My Entry Into The Industry

When I first entered the industry with a large insurance company, I had to pass a few tests before I could begin approaching and “advising” potential clients. This study and testing took me about two months of work after which I was legal prepared to dispense financial advice. I was utterly unprepared to take on this role. In fact, after I informed my supervisor that I had passed the exam with a score of 94% correct, I was told I had studied 24% too hard! These tests were not about learning, but simply about being allowed to sell product.

My business card read “Financial Advisor”, yet I would have struggled to balance my own checkbook much less help people with complex financial decisions. I was expected to learn on the job with little oversight and input from experienced financial advisors. I was encouraged to pursue further education as time allowed, but advised to first build a client base and focus on one product to sell to that client base. The damage I might have done to people’s finances is unspeakable. Fortunately, I was horrible about approaching the people I was recommended to try to secure as clients, my friends and family.

This is how many financial advisors enter their financial services careers. There is no career path, no formal training, no required mentoring or residency. Trial and error on early clients is what is advised. This means that each generation of financial advisors is destined to make the same errors and provide the same wrong financial advice as previous generations. The body of knowledge does not expand, the profession does not develop. There is no professional memory.

A Well-Designed Path

The solution to this problem is simple, yet expensive and unlikely to move forward quickly. In fact, many smaller financial planning firms across the country have begun to take steps to create professional memory and a true career path for people wishing to enter the industry. The solution requires a path of entry which is not predicated on selling product immediately. There must be meaningful education required. Mentoring or residency has to be included. A well-defined path to becoming a financial advisor is necessary in order to move the profession forward. Large financial institutions have no incentive to help push the solution forward, however. They are creating sales people, not trusted advocates for clients. Less expense and quicker sales results are their focus. Education, mentoring and residency mean increased cost and time to making new entrants productive.

The CFP® curriculum has provided a good first step toward education requirements. It provides a great deal of the technical knowledge necessary to provide clients good financial advice. It is, however, beset by problems leaving it short of what is needed to advise clients well. The curriculum is almost entirely technically focused; there is no education on how to work with clients and how the delivery of advice can impact the likelihood of a successful relationship. There is no focus on how to deal with difficult situations such as clients in true financial distress. The most powerful, yet basic, parts of financial planning are glossed over (budgeting, goal setting) in favor of more focus on complex investment, tax and estate planning knowledge. The CFP® curriculum is grounded in high-net worth financial planning focus and lacks focus on helping a broad spectrum of consumers.

Mentoring or residency is critical to the development of the profession and to prevent wrong financial advice from being dispensed with such regularity. There is tremendous amount of knowledge in existence today, knowledge which should be passed from the older to younger generations of financial advisors. The older generations have experienced several economic cycles, different financial behavior trends by Americans and have can teach new generations about their learning. This needs to be experiential learning where the new generation is allowed to provide financial advice with an older generation advisor stepping in to prevent major mistakes. The new generation must be allowed to make mistakes to learn, but these should not reach clients. The lessons have been learned by the profession, clients should not have to experience them again. This type of learning can only be accomplished with a deep junior/senior advisor mentoring relationship.

Where We Stand Today

If you are wealthy and can afford the services is a very good financial planning firm, much of what I have described is becoming available to you. More and more firms are recognizing the need to develop the next generation of financial planners and have worked on a strong path to do so in a responsible manner, not putting clients’ well-being at risk. These firms are the exception, however. Most new entrants begin with large financial services companies who continue to throw inexperienced and untrained individuals into the fray, recognizing a few will stick and be able to sell product and having no concern for the damage done in the process.

If you are not wealthy, these are predominantly the people available to you right now. These are the individuals who need to take on any client in order to make a sale and put food on the family table. Most who I have met are trying to provide good financial advice and help you, but they lack the training and experience to do so well. They live in a compensation system designed not to give them the time to develop. You should have access to better financial advice than this.

The CFP® curriculum is constantly being tweaked, and there seems to be some momentum to include new focus areas into the body of knowledge. Hopefully, we will see a new form of financial knowledge being taught to future CFP® certificants. Colleges and universities are beginning to offer financial planning degrees, as well.

There is movement in the correct direction. But until this movement has made significant strides, financial advice will continue to be wrong. As a client or potential client, you must understand that you are not working with a profession trained the way other fiduciary professions have been trained. You will receive financial advice that is wrong when it does not need to be. You will encounter inexperienced advisors who do not have someone looking over their shoulder to make certain they do not guide you poorly. Be aware of this, and understand that you must shoulder the burden to know the limitations of your financial advisor and to seek a new opinion when something feels wrong.

All financial advice is wrong. This is another example of where this “wrongness” stems from.

Let's Aspire Higher: The Fiduciary Standard Is Not Enough

My introduction into the financial planning world began at a well-respected fee-only financial planning firm in Appleton, Wisconsin – Wealth Management LLC. I learned a tremendous amount during my 3+ years at this firm and had planned to spend my entire career there. Unfortunately, the firm met an abrupt end for a number of reasons which led to the SEC placing the firm in Receivership. I bring this up because, while I believe in the fiduciary standard as the next step, I think it is time financial planners and advisors recognize the responsibility we have taken on with our clients and aspire for an even higher standard.

Clients turn to financial planners and advisors for help with financial issues they do not understand. They look for someone whom they can trust to care for their financial well-being nearly as much they do themselves. This places an incredible responsibility and burden on financial planning professionals. We have the ability to do tremendous good, but equally tremendous harm. We can ruin lives with our decisions and recommendations. We can cause irreparable harm with one poor decision. We can do all this despite working in our clients’ best interest.  We do not try to hold a scalpel steady whose one slip can kill a person, but our impact carries nearly as heavy a burden. We cannot end life by our own hands, but we can maim happiness tremendously. 

During my time at Wealth Management LLC, I know I always worked in the best interest of our clients. While I can only truly speak for myself, I believe that everyone else at the firm had a similar commitment to client’s interests. In the end, that commitment was not enough.

Let the bottom feeders argue why a fiduciary standard does not help clients. For those of us who know working in a client’s best interest is the only way forward, whether by legislation or choice, let’s begin a discourse about what the true standard should be.

We can have remarkable positive impact in clients’ lives and on society as a whole. First, we must understand our charge and understand what comes responsibilities that charge carries. We need to do more for people. We need to understand the impact our financial discussions have on clients. We need to accept our burden or leave the profession.

And About That Free Financial Plan

Have you worked with or been approached by a financial advisor who offered you free financial planning services? It sure seems hard to beat free and is pretty easy to agree to that type of service. Compare that to the financial advisor asking you to pay for financial planning service and it’s almost a no-brainer, right? It’s a great sales pitch, but could actually cost you more while delivering poor financial advice. Consider the following scenario as explanation to why this is the case.

You walk into a hospital and can work with one of doctors. Each is given a few minutes to speak with you and explain how they offer their medical services, after which you have to choose whom to work with. Each doctor attended the same medical school, completed residency at the same hospital and seems nearly identical to the other in training and skill. The only difference you can discern from the conversation is how you will have to pay each doctor.

The first doctor discusses that he will charge you an appointment fee each time you meet. The only services included with that fee are his diagnostic services, physical examinations and treatment recommendations based on these examinations. The fee does not include any laboratory services or medication prescriptions under the treatment recommendations. All expenses beyond the appointment with the doctor will require additional payment by you. To fill medication prescriptions, you will have to select a pharmacy and pay for the drugs at that pharmacy.

Then you meet with the second doctor to discuss his services and fees. The doctor explains that you will be able to meet with him any time you wish with no cost to you. He will provide diagnostic services, examinations and laboratory services as required without any cost to you. Come for a cold, come for a broken bone…you will never be charged a penny for diagnostic work and treatment recommendations. All this doctor asks in return for his service is that if he prescribes you a treatment plan that includes medication, you visit with him in his pharmacy and purchase medication prescribed to you from him. Next he discloses that, while he is able to sell drugs from most major pharmaceutical brands, he gets paid a significantly larger commission by some brands than others. He goes on to tell you he is actually employed by one pharmaceutical company as a salesperson. He makes it clear that you are under no requirement to use his pharmacy, but that it is extremely convenient for you to do so.

As you mull over your choice, you may begin to think that the first doctor sounds like he could become very expensive. After all, you have to pay for his services and then pay for any other services as well. The second doctor does not ask for a penny, but would like you to buy your medication from him. Is there a problem with this?

That free financial plan you have been offered is very similar to the free medical advice the second doctor offered. The deal sounds pretty nice and it sure is easy to say yes to free. That free financial plan being offered is not in reality quite so free, however. As might be the case with doctor number two when providing medication treatments, a financial advisor offering a free plan will be inclined to recommend financial products for you to purchase. This is, after all, how he gets paid. If you do not purchase products, you do get a free financial plan (albeit one with recommendations that may be questionable or skewed toward a product sale.) Moreover, the products recommended under the free financial plan may end up costing you more than it would have cost to pay for planning services and products separately!  You have been told that the commissions by some brands are higher than others…which do you think the financial advisor is likely to recommend? And you pay that commission. It may not be outright in the form of a check directly to the financial advisor, but it comes out of your premium payments or money being invested. It is NOT free.

Assume now you meet with two financial advisors. One works for a large investment brokerage, and the second for an independent fee-only financial planning firm. The following comparison is simplified, but offers a representative model of the type of fees you might pay.

Assume the first financial advisor recommends a mutual fund with a 3% commission and a 1.5% annual expense. You could invest $100,000 dollars with this advisor, who then receives $3,000 of your money from the mutual fund company. Additionally, you pay an expense to the mutual fund company of $1,500 every year. If the value of your investment goes up, this figure will rise. So, the total expense for the advice the financial advisor provides and his treatment plan recommended is $4,500. If your advisor recommends changing your investment in the future, he could receive another commission at that point, as well. 

Compare this to the second financial advisor who charges you a fee for his financial plan. He charges you $1,500 for the financial planning work and 1% annually to provide ongoing financial advice and manage your investments. Then he recommends you invest in several no-load (no commission) index funds with an average annual expense of .6%.  Again you invest $100,000 with this advisor. Now your total out of pocket expense is $3,100. The financial advisor receives $2,500 total and the fund companies receive $600. AND in future years, you only pay the advisor $1,000 for ongoing financial advice and financial planning services plus the $600 mutual fund company fees (which could increase or decrease depending on how your investments perform.) There are no future commissions charged to you and the advisor is under no compulsion to recommend you change your investment plan in order for him to get paid again.

Think twice about that free financial plan. It’s really not so free and it carries with it a lot of conflicted advice. Would you choose the pharmaceutical representative who is also a doctor? Do you think the treatment plans this doctor offers might be a bit skewed? That free financial plan is very similar. I know I do not want my medication advice coming from a pharmaceutical representative and equally do not want my financial advice coming from a financial product salesperson. How about you?

Customer Versus Client – It’s More Than Just Semantics

If you are looking for an easy way to test how a financial advisor, financial planner, insurance agent or investment advisor views your relationship, I suggest you try the following. Ask them a question designed to get them to talk about another individual to whom they provide services. The question could be anything relevant to your discussion that elicits a response about another individual. The goal is to get them to discuss someone else.  As an example you could ask the following: ”Tell me about a time when you helped someone your work with about how to emotionally deal with market volatility.” You will want to listen carefully to how this professional characterizes the other individual to whom they provide services. Do they refer to these people as customers or clients?

While on the surface there may seem not much difference between customer or client, I believe that there is a significant amount of value and weight conveyed by which word is used. The word selected can help you understand how a financial professional views you. From Mirriam-Webster’s online dictionary a customer is defined as “one that purchases a commodity or service” whereas a client is defined as “a person who engages the professional advice or services of another.” This small difference in definition can mean a great deal to what type of financial advice you receive. While the difference does not necessarily speak to whether you can expect a financial professional to work in your best interest or not (although I believe it often does), it certainly can help you understand the type of service you will receive.

My contention is that someone who refers to the people they provide service to as “customers” views their service and relationship as a one-time transaction with no long-term relationship implied. They may provide the advice delivered in your best interest, but do not view their role as extending beyond the time that advice is delivered unless a new transaction is involved. Once you have purchased the product or service they are offering you, their obligation to you has formally ended. This type of short-term, transactional focus can be an indication that the person you are working with is a product focused salesperson. This is not always the case, as there are financial professionals who deliver advice services on a one-time basis to lower net worth individuals as a way to make their services more affordable, but these people are likely to refer to you as a client. It is the use of the word customer that carries weight and creates a value statement.

Someone who refers to the people they work with as “clients” likely views their services as a long-term relationship where the delivery of advice is the main “product.” While there may be product recommendations and even selling involved, the transaction is not the focus with a client. The focus is on fostering a mutually trusting relationship through delivery of a valued service, open communication and working in your best interest. A client is a person whom a financial professional hopes to work with for many years to come.

The difference in definitions of customer and client are small. The implications of these differences in what you can expect from a financial profession are real and meaningful. As always, there are exceptions to this, but in deciding who to work with the customer versus client test provides you one more tool to know what type of professional you are speaking with.

Financial Advisor or Producer?

If you have any doubt that what I have written over previous posts about the focus of some firms being to take your money carries truth, I thought I would share what many financial advisors are called internally in these firms. This should help reveal how these firms view their advisors and their customers. Insurance companies and investment firms often do not call their employees and contractors by the titles they use with clients; instead they are called “Producers.” Why producers? Because, in the opinion of these firms, the role of these individuals is to sell product and produce revenue. Their role is not to help clients, although they may choose to do so. The system they work in is designed to reinforce only that they need to close, close, close. All other considerations are secondary to their role as salespeople.

You may be thinking this is simply an argument in semantics. I submit that it is far more important than that. This speaks to the frame of mind of the firms, of the culture they create, and of where the duty lies for these “producers.” Even for those who want to truly help clients, they work in a culture where the sale is more important than the interests of the client. When performance of producers is reviewed, the question is not “how many people have you positively impacted”, but “how many products have you sold”. At every moment, producers are reminded by their employing firms what is most important – that they meet their sales quotas and sell profitable products. How can even the most principled, devoted professional be expected to maintain focus on helping people first when bombarded with reminders and virtual brainwashing techniques that teach that the sale is the most important goal?

When I began working in the financial services industry, I found myself in this type of environment. I worked with people who did try to put clients first, who truly wanted to help people and who tried to fight through the system in place to do so. On some level, I feel certain, that at times their judgment was clouded by the system. Try as they might, they were too often reminded that they were producers. I certainly fell into this trap. In fact, I looked for any way to increase my sales numbers because I needed income. In this search, I ran across an internet forum named Top Gun Producers. This website claims to help people struggling to move forward in sales in the financial services industry. They consider meeting with potential clients the “battleground.” The focus of the website and all discussions is how to win the sale at virtually any cost. Unfortunately, they have locked the forums now to registered users so you cannot see for yourself the types of people working as “financial advisors” that you must be aware of. I do think these types of individuals are the exception, not the norm; but many of them are very successful and you must be aware that they are out there, pretending to help people when in fact they are only trying to become as wealthy as possible as quickly as possible. These producers are not a part of any profession. They are vultures preying on the trust many professionals have worked very hard to create with consumers. The negative impact one of these individuals has requires the honest, good work of dozens of professionals to counteract both in terms of goodwill and damage done to people's financial well-being.

Consider, do you want to work with a producer or a financial advice professional? Do you to trust someone who is constantly bombarded by their employer that they must sell product, or do you want someone who is given the space and focus to provide advice in your best interest? Do you want to risk trusting a “Top Gun Producer”?

All Financial Advice is Wrong - Upset The Industry Series Part 1


Today marks an important milestone since I began this blog. This morning is the first time I sat down to type something and found myself with nothing to say. Nothing I read or thought about inspired any words. Nothing irritated me and required a retort. Nothing on my mind seemed worth sharing. I reviewed notes for future post ideas, and nothing struck me as worthwhile. It had left me in a bit of a quandary. I have made a commitment to create a new, meaningful (at least to me) post daily, even if only very short. I anticipated days where the writing would be tough, but had not determined how to move forward. I nearly decided not to post anything today and rescind my commitment, but as I was making that decision an idea struck me. I thought I would begin a series of posts based on my belief that virtually all financial advice is wrong. I will call this my “Upset The Industry” series. I am going to write several posts over each looking at a separate issue, and then culminate with my main thesis that all financial advice is wrong. These posts will be my writer’s block solutions, where I say what I truly think without much editing or holding back. (Update: I initially did not state that while I believe all financial advice to be wrong, that does not indicate that I think good financial advice to be of no value. Quite to the contrary, I believe that financial advice done well can have tremendous power in a person's life. I believe this is important to state up front in the event a reader of this post who does not read the full series misses the most important points in the culminating post.)

My first post in this series deals with financial products. Anytime someone tells you a product is the solution to your problems, they are almost invariably wrong. Financial advice is never about product. There are thousands of financial products available, most too complex to really understand. They may be designed to address one issue or another, but almost always have drawbacks that hurt another part of your financial well-being. Among financial products I include investment vehicles (mutual funds, ETFs, stocks, hedge funds, etc…), insurance products (life insurance, annuities, disability insurance, property & casualty insurance, etc…), financial plans, and many other products. The answer never lies in a financial product. Often a financial product recommendation is either driven by compensation incentives or an advisor’s personal experiences, which can at times be misguided.

There is no correct answer to any person’s financial problems, but there are some answers which are better than others. Financial products alone never hold the correct answer. Products are worthless unless they are supported by good advice from a knowledgeable professional working in your best interest. Complex products are often too difficult to understand the true benefits and costs to your financial well-being. Many products are not understood well by the professionals recommending them. These can lead to products being recommended at times when they are not appropriate.

If you are working with someone who predominantly offers products to help you reach your financial goals, you are not working with a financial planner who is concerned with your full financial-well being. More important than a product is the service delivered, the education offered and the promise made by a financial advisor. The service should include knowledge of the product, an understanding of your whole financial situation and how products could both positively and negatively impact you, and an explanation of alternative solutions. Education should include teaching you financial knowledge you may not yet fully understand or even be aware of. It should also include educating you fully on any product being recommended. The promise is the most important element. The promise a financial advisor makes should include what expectations to have of the advisor. These expectations should include the type of service to be delivered, an expectation to work in your best interest, and an expectation that the financial advisor has the right to speak freely with you and tell you when they believe you are making a mistake or misunderstanding something. There should also be an expectation that you be able to speak freely with your advisor and tell them when you are dissatisfied or do not understand something or the advisor has misunderstood something you said.

Products are never the solution to your financial well-being. If you are working with a professional who focuses on products as solutions, understand that they are not someone providing you the best financial advice possible. Most likely this individual is a salesman in financial planner’s clothing. Their goal is to sell to you, not to help you. Often these people sell one or two products in virtually all situations. They only have a hammer to offer, so they figure out how to make all problems look like nails. These are not people to turn to help you reach your goals and increase your financial well-being. These are not people to whom you want to extend your trust. Often these people work for insurance companies or investment firms, but they can also be found in independent investment advisories and independent financial planning firms. They may not recognize that they fall into this group. The telltale sign is a focus on products instead of a focus on you, on service to be delivered to you and on a promise made to you.

All financial advice is wrong. Financial advice based on product sale is particularly wrong.

Real Time Web Analytics