Our firm of fiduciary advisers spend a significant amount of time helping clients distinguish the differences between practical decisions and emotional decisions. Everyone likes to think that they always remove emotion from the equation and respond with reason.
When it comes to money, there are few places where emotion has a greater presence. Long before you battle letting emotion slip into your investment behavior or influence your level of spending, you make the decision of partnering (or not) with an adviser.
Whether it is your nephew, a friend from church, or an old college pal, deciding who (if anyone at all) you are going to allow to impact your financial decision-making deserves a strong vetting. Similar to a prudent investment process which defines rules to make us aware of our investment biases, our decision making for choosing an adviser should have rules to give us caution in instances of somewhat impractical emotion.
Emotion will, without a doubt, ultimately have strong influence when choosing a financial partner. However, this huge life decision at least deserves some consideration from the logical part of our brain. After all, you are usually turning your life savings over to this person.
In all situations, with a present or new adviser, consider the three Cs; conflict, competence and custody.
- Conflict – “100% conflict-free advice.” These are arguably some the most misleading words in financial advice today. They further add to the seemingly endless number of considerations consumers have to shuffle through when working with an adviser.
Truthfully, there really is no such thing as “conflict-free advice.” All business models (e.g., fee-only, fee-based, commission) have flaws that create conflicts of interest. Seek to work with an adviser who has created a model that minimizes as many of these as possible. And more importantly, is relaying to you when these instances arise.
- Competence – no one goes out and picks someone who does one knee surgery a month to operate on their knee. They go to a doctor who is doing multiple knee surgeries a day and helping others just like them.
Your financial planning partners should be no different. At a minimum, try to work with a CFP® Professional who you know has been through focused training and meets a minimum number of mentorship hours. Beyond that, seek someone who specializes in you. Are you an accumulator that works with an adviser who mainly serves couples who want to retire within the next 5 years? Chances are, the majority of that adviser’s energy will be focused towards maintaining and learning new ways to better help people who are spending down their assets versus a family with young kids looking to save for retirement while also focusing on more immediate-term goals.
Custody – Bernie Madoff is why this is important. You should never give custody of your assets to your adviser. This will add a layer of checks and balances to ensure that your adviser is acting within their intended capacity.
Instead make sure that your assets are held at a large custodian. These are usually large names that you have heard such as TD Ameritrade, Fidelity or Charles Schwab.
Many have claimed the famous quote “the quality of your life is measured by the quality of your questions.” We face decisions every day, some bigger than others. But, when it comes to getting help with your life savings, the quality of your outcome is strongly dependent upon the quality of your questions.
If you are interested in learning more about the appropriate questions you should be asking, we would be honored to continue the conversation. Click Here
Date Published: May 24, 2017
Author: Chad R. McPherson
Phone: (812) 602-5980