Bernie Madoff. Hard-driving insurance salespeople. Mutual-fund salespeople in advisor’s clothing. There are plenty of reasons to distrust financial professionals.
The truth is that a financial advisor can help you profoundly improve your life. But you need to trust your advisor to get there. And how can you trust a financial advisor, when the whole financial industry seems so…untrustworthy?
A Story About the Primacy of Trust
One of my clients, let’s call her Kelly, recommended that a friend work with me. This friend, let’s call her Hazel, is on the verge of retirement and is anxious about whether she’s financially prepared.
When Hazel and I first talked, I told her that my practice is geared towards people at an earlier stage of life, not retirement. The needs are very different. I’d be happy to refer her to another fee-only fiduciary targeting retirement-age folk. Which is to say, almost every other fee-only planner out there.
Hazel said no thank you. Kelly had recommended me, she trusted Kelly, she liked what she read on my website, and she just wanted to get started.
Okay, I said. I can provide a one-time comprehensive plan to evaluate whether you’re prepared for retirement and what you need to do to improve your retirement prospects. But I cannot provide you ongoing services. At the end of our work together, I can help you find another planner. And yes, you might well have to pay that person another up-front fee.
Hazel said okay, let’s do this. Kelly had recommended me, she trusted Kelly, she liked what she read on my website, and she just wanted to get started.
At which point I relented. I had tried to direct this client to another planner several times. I had told her explicitly my service isn’t set up for her. That she’d very likely have to work with another financial planner after she finished working with me. But none of that mattered (enough). What did matter?
She trusted me.
The General Atmosphere of Distrust
While it was flattering that this stranger trusted me, it was mostly a depressing commentary on the state of the financial-services industry. Hazel is far from alone in knowing she needs help with her finances but not knowing where to find someone she can trust to do right by her.
Why does the financial industry (which, admittedly, encompasses a huge variety of professions, from investment bankers to options traders to solo financial planners such as your truly) have such a bad reputation for ripping people off? Because there are so many stories of just that happening.
First there are the outright criminals.
But I’m more concerned with the legal behavior that still manages to under-serve clients and undercut their financial ambitions. The advisor who:
- Puts you in Mutual Fund X because it pays her a commission instead of the cheaper, equally good Mutual Fund Y, which pays a lower or no commission.
- Recommends that you buy a variable annuity “for the tax benefits” even though you haven’t yet maxed out your employer retirement plan.
- Charges you 1% or more of your assets to actively manage your portfolio, but the advisor doesn’t provide any service beyond investment management, you don’t understand how you’re invested or why, and if you did you’d realize that those investments usually don’t do any better than a low-cost, set-it-and-forget-it balanced fund
“Fiduciary” Battles
This is what’s behind the raging “fiduciary” battles: the Department of Labor has imposed the fiduciary standard on employer retirement accounts, and huge swaths of the industry are freaking out.
Being subject to a fiduciary standard means that an advisor has to put her client’s interests ahead of her own. From your perspective, that sounds great, right?
If you’re a Registered Investment Advisor, you are already subject to the fiduciary standard. Brokers, however, are only subject to the “suitability” standard, which requires them only to make “suitable” recommendations to clients (like Mutual Fund X, from above) even if a better one might exist.
Why are major financial professional organizations and companies flipping out? “We can’t possibly continue to provide clients financial advice if, you know, we have to put their interests before our own.” (My characterization.) Sounds like a pretty rotten service model if serving your clients first is a death knell. Remind me why we should soften the rules for you again?
Advisor-Client Mismatch
And then there are the advisors who provide a good service…but one that simply isn’t right for you. Maybe you and your advisor started out in sync and grew apart, or maybe you were so desperate or uncertain you went with an advisor who simply didn’t provide what you needed. A feeling of distrust can grow simply because of that mismatch, and really, it’s no more your advisor’s fault than your own.
The Importance of Trust
Without trust, your financial planning relationship is useless.
You and your advisor will spend hours together, talking about your finances, what you want to accomplish, what makes you worry, what excites you. Your advisor will then spend many more hours figuring out how she thinks you can best reach those goals, reduce your worry, and play to your excitement. Then your advisor will give those recommendations to you.
But if you don’t trust your advisor, you won’t implement those recommendations. And if you don’t implement those recommendations, nothing will change. So what’s the point?
Not to mention it’s just plain unpleasant working with someone you don’t trust.
You have to find an advisor you trust.
How To Find Someone You Can Trust
Step 1. Get a list of at least three advisors.
Get a referral from a friend, family member or co-worker. Or use a Find a Planner tool (from XYPlanning Network or NAPFA, both fee-only organizations; I’m an associate member of the former). Do Not Stop Here!
Step 2. Interview your potential advisors.
Why? Let me tell you a story. <Sits languidly back into her easy chair and stares unfocused into the distance>
When my husband and I bought our house last summer, I didn’t know bupkus about buying a house or how real estate agents worked (except for the slightly sleazy reputation the profession seems to have…hey, sounds familiar!). So, we interviewed three. I met one of them in a coffee shop and got recommendations for the others.
The guy we chose was head and shoulders above the other two. He had a process. Which he could explain to us. It involved a lot of client education upfront and along the way. He exceeded my expectations for the profession, which were wholly manifest in the other two jokers we interviewed.
Similarly, you probably have little to no experience working with a financial advisor. Why would you? You have to interview several to get a feel for the range of personalities, processes, and philosophies.
How? I wrote a piece about the questions you should ask a planner to suss out how well she matches your needs.
Step 3. Choose one.
The one that not only fits your financial needs but also the one you feel comfortable with. Yes, this is a “gut” thing. I believe in the gut (just not when it comes to making investment decisions. Or Chuck E. Cheese pizza).
Step 4. Keep checking in with yourself.
Throughout the planning relationship. Have your needs changed? Has the advisor’s service? Do they no longer match? Choose someone you trust, but don’t abdicate responsibility; it’s your money and your life after all.
Question: What would it take for you to trust a financial advisor? You can leave a comment below.
Are you interested in learning more about my personality, process, and philosophy, and whether they fit your needs? Reach out to me at or schedule a free 30-minute consultation.
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Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner and/or an accountant for advice specific to your situation. Reproduction of this material is prohibited without written permission from Meg Bartelt, and all rights are reserved. Read the full Disclaimer.
