How to pick a financial professional for’s not what you think.

01.07.20 09:10 PM Comment(s)

From the Clipboard - Misc - What's your style?

At the end, I’m looking for your thoughts. Please share!

It’s taken me a long time to write this. It’s something that I’ve always wanted to do, but it’s hard to explain - I think - yet it’s really important.

Quite frequently, I see this question posted on social media:

“How do I pick a financial professional/advisor/planner to help me with my finances?”

Especially when posted on social media, you will quickly see all sorts of answers. Check qualifications. Fiduciary status. How they are paid. And other factors. Honestly, while these are all important, I don’t think they all matter as much as people think.

One thing that I read quite often in professional journals is that financial professionals fret about clients not taking their advice. After all, they are experts in their field, spend lots of time putting together elaborate financial plans or strategies that will benefit the client, and then...nothing. All that work for naught. There’s lot of reasons why this may be the case, but I think one reason that isn’t talked about enough - a mismatch of “philosophy”.

We see this all of the time in the world. In sports such as football, some teams emphasize defense (hence the “defense wins championships” saying) while others emphasize offense. In medicine, some doctors tend to use prescriptions for everything while others emphasize different kinds of healing or surgery. For those who don’t think this is the case - have you, or anyone you know, ever wanted to get a second opinion on a medical procedure before doing it? If you just trusted your doctor fully, why would you need to get a second opinion at all?

In the financial world, there are examples of differences in philosophy in handling finances:

Best way to pay down debt - highest interest rate vs smallest balance

Saving vs paying down debt

Paying off the mortgage early

Saving in a traditional retirement plan vs Roth

Buy term and invest the difference vs buying permanent insurance

And many others.

My point is that this is a far bigger factor that people anticipate. For example, if I tell you to pay off your debt by the smallest balance first, and you are dead set on paying off the highest interest first, we’re going to waste a lot of time discussing this. You’ll get frustrated and say “he gives bad advice”. I’ll get frustrated and wonder why you don’t take the advice. We won’t work together for the long term.

For financial professionals like myself, we’re usually so anxious to get the next client that we don’t spend a lot of time thinking about whether or not we’re a philosophical match for the client. We want the business. And we have our own biases. There are many professionals who are set in their ways. Some say that paying off the mortgage early is never a good idea. Or always maxing out your 401k contribution is best.

Clients, in my experience, don’t think about this enough either because often they don’t know their financial style. For some things, yes. But as human beings, we consider what others say. If everyone around us tells us that we should pay off the highest interest rate first, then that’s likely what we’re going to believe even if that may not be the best thing for us.

(You see this in professional football as coaches elect to punt on 4th down even though statistically, going for it has a higher than expected success rate. Why? Because that’s what everyone does. It’s the “it’s the way we’ve always done it” situation.)

When it comes to saving/investing, most people focus on “winning”. After all, in our society and sports, we want our team to win! Unfortunately, to try to “win” in finance, many people fall victim to the get rich quick schemes or chase after the hot stock tip. Or spend lots of money on lottery tickets.

The ideal situation, to me, then would be where both parties are either in philosophical alignment or open minded enough to consider alternatives - and can adjust accordingly.

Readers - I know my style of how I handle client finances, but I’m at a loss as to figure out someone else’s style prior to working with them.

What do you suggest, other than just asking? Many people wouldn’t be able to answer.

Help me out. I’d like to hear from you. You can comment here or email me.

I write primarily on college financial aid and retirement planning topics. My firm has a particular specialty in working with self-employed or small business owners on these issues. My content is for educational purposes only and should not be construed as advice or any kind of solicitation to buy or sell anything. As always, consult your own financial or tax professional for your own specific situation. Your mileage may vary. Batteries not included.

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