How to work with an advisor

on Tuesday, 27 November 2012. Posted in
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mf821-02151377I had a potential client visit the other day who was like this doctor’s patient.  The doctor asks the patient, “so what seems to be the problem”.  “None of your business,” replies the patient.  “So how can I help you?” asks the doctor, confused. “I’m not feeling well, so I want the best drug, the best one you have that will make me feel better”. The doctor looks confused, “how can I help you, if I don’t know your situation?”  Every couple of months we have a potential client who is just like this patient.  Asking for our help, but unwilling to share anything about his situation.

In  my first year as a financial advisor I used to attempt to provide information of some kind, but I quickly found it a waste of time.  I no longer work with people who don’t see us as partners.  We aren’t doctors, we admit, but it still doesn’t make any sense for the following reasons.

Firstly, there are millions of investment products available and each and every one is different.  Different levels of potential return, different risk, different currencies, different entry levels, different encashment terms, different correlations, different assets, different legal structures, different tax treatments…etc.  I think you get the picture.  Picking “the best investment” from this, whilst knowing nothing of the client makes throwing a dart at a dart-board blindfolded seem sane.  It just won’t work.  There is no such thing as “the best investment for everyone”.

Secondly, we are required, as part of the terms of our professional memberships (I’m a member of FINSIA in Australia for example) to have a fair and reasonable basis for a recommendation to a client and this requires me to understand the client’s situation.

Thirdly, it assumes that we only have products and no useful advice to give.  In many meetings I’ve commented that an interest rate on a mortgage is too high, that the bank transfer fees they are paying can be reduced, that different tax treatments on their existing investments can be achieved legally through other means.  I’ve saved thousands, sometimes tens of thousands for a client without any direct involvement.  Just advice.  If you insist on treating your financial advisor as a dodgy salesman, then that is what you will get.  If you treat them like a child, then they will act like a child.  And the good financial advisors will ignore you, to your own detriment.

Fourthly, it assumes that the advisor has no interest in providing useful or tailored advice.  That is strange actually since it doesn’t match reality at all. One of the first comments on working with people’s money I ever learnt as an advisor is “find out what they want, then give it to them”.  Let me tell you, it is a million times easier to sign a client up to an investment if that investment matches their needs and wants perfectly.  If it doesn’t match, only the golden tonsils of a gifted few can make any leeway.

That doesn’t mean we only address the ‘wants’ of a client, we also look at their ‘needs’ too.  When working with new clients, we often provide two parts to the report.  Something that addresses what the client wants to do or achieve, and then something, in our professional experience, they need to do.  Such as building a nest-egg, or diversifying their currency or asset exposure.

So here is our advice for working with a new advisor.

  • Tell them directly where you are.  They don’t need to know bank account numbers of course, but the rough balances, currencies, and assets (is a property or a share?) as well as mortgages and debt.
  • Next tell them where you want to go.  This is also just as important, and it might be that you and your spouse need to have a discussion after some careful consideration and thought.  Without a goal a portfolio risks drifting.  After all, if you don’t know where you are going, how can you set a plan to get there?
  • Talk about your bad and good experiences, and how you normally invest.  Everyone has patterns of behaviour or habits.  Some of your habits could be good (saving perhaps) and others might be bad (laziness or excessive risk-taking).  By talking through your experiences a good advisor might be able you identify problems and mistakes you didn’t know existed, and develop a strategy to manage and avoid these from hurting your family’s fortunes.

In the end if your treat them like a professional independent partner, and they re-act in kind, then you will have gained, not just one opportunity but a lifelong guide and partner for creating the sort of future you and your family deserve.

 

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