The customer is always right has to be one of the most dangerous catch phrases in business.
Nobody wants to argue, but an advisor that always says yes to clients is doing them a disservice. An advisor that will “talk back” provides a lot more value.
As a Certified Financial Planner™ Professional, I am required to always act in my client’s best interest, and that can involve telling a client no, or even choosing not to work with a client or prospect. “Talking back” may be a bit strong, but I believe that part of my job is telling my clients no on occasion, or at the very least, challenging them when I feel a decision is not being made with their true best interests in mind.
I would break this down into two separate categories: financial planning and investment management .
“Talking Back” Increases Client Accountability during Financial Planning
The financial planning PROCESS is exactly that - an ongoing process. Unlike how many other advisors operate, it’s not a one-time deal where you are sold a product that will take care of all your life needs.
Financial planning is collaborative. As life happens, changes occur in a family’s finances, and therefore, their planning. The process typically starts with defining a family’s goals and values, and builds from there.
Part of the planning process is accountability. A good advisor helps clients define their goals and values, and provides accountability through the planning process.
Here are some examples where an advisor can challenge clients.
A family’s primary goal is to get out of debt. However, when the planner analyzes spending he realizes they are spending $500 a month dining out. This doesn’t align with their goal of paying off debt.
The client also decided not to contribute to Thrift Savings Plan in order to free up cash flow for debt payments. Paying off debt is a great thing to do, HOWEVER, if a federal employee contributes 5% to their TSP, the government matches with 4%. That is an immediate return of 80% on your money! Barring a tragic event, NEVER STOP CONTRIBUTING 5% TO YOUR TSP.
A family’s primary goal is to save for retirement, but they still choose to send their firstborn to an Ivy League school costing $70,000 a year. Again, the actions aren’t aligned with goals. I’m going to go out on a limb and say that a student that gets into an Ivy League school could go to a public or private school for less than $20,000 a year, and probably less than $10,000. That is at least a $160,000 difference over four years, which is big money no matter how you frame it! Now that they let the first child go to an Ivy League school, what is going to happen with the next? Are they going to tell the second child they can’t go to their dream school? The family may still opt for the Ivy League school, but it is important they understand the repercussions of their decision such as:
Financial planning is all about aligning what you believe in with finance. A good financial planner can help you understand where and when the two don’t align.
“Talking Back” Can Increase Clients' Odds of Success in Investment Management
For investment management to be effective, both the client and advisor have to be on the same page (more or less).
Here are some examples of when I either have, or would tell clients no regarding investment management decisions.
One way an advisor provides value is by creating separation between a client and their money. Part of an advisor’s job is to make rational decisions, not emotional decisions. Sacrificing your objectivity as an investor can lead you to make the worst decisions at the worst times, like getting out of the stock market at the bottom of a market downturn.
I understand that my investment philosophy is not the only way to invest, but I believe it is the best way to invest. That doesn’t mean that you can’t buy a private placement or buy penny stocks, but you can’t do it with me.
Finding the Right Advisor
When searching for a financial advisor, one criterion you may want to add to your list is to find an advisor that will tell you “no.” There are a number of other criteria you may want to add such as a NAPFA-registered Advisor. These are advisors that are committed to doing fee-only financial planning with clients. Working with an advisor who is compensated based on a fee rather than commission aligns the advisor with your long-term interests. Advisors who are compensated on commissions have no incentive to make 100% sure that their recommendations place your interests before their own.
In my experience of the better part of two decades, my ability to challenge clients has done them tremendous good by keeping them accountable and objective as our process is at work.