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How to distinguish between a good financial adviser and a bad one

 
CFA Institute Contributor
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Based on the number of notes I’ve written in the margins, the quantity of words I’ve underlined, and how often I pull it from the shelf, The Hard Thing About Hard Things by Ben Horowitz has my vote for the best business book.

It contains an invaluable essay — 'Good Product Manager/Bad Product Manager' — that serves as a useful training document for the position and expands on the characteristics, habits, and mindset that separate — you guessed it — good product managers from bad ones.

Inspired by that essay, here is my take on what distinguishes good financial advisers from the rest:

Good advisers understand financial planning, taxes, estate planning, insurance, economics, and investing. But more than that, they know how each affects their clients’ lives. Good advisers have a strong base of knowledge and confidence.

Good advisers champion their clients and take responsibility for their financial performance. They do not give excuses. They build relationships over time to understand the complete context of a client’s situation. They take seriously the responsibility for devising winning financial plans that they can execute together with their clients. Bad advisers make excuses for poor performance, lack of communication, fees, etc.

Good advisers know about smart investment strategies but recognise that investing is only the engine of a financial life, not the navigational system. The client sets the goals to navigate towards.

Good advisers take the time to have a conversation with clients about their recent life events, priorities, goals, or objectives. Bad advisers spend their time telling clients about the performance of their accounts, their firm’s market forecasts, and a never-ending stream of hot investment ideas. Bad advisers don’t consider their clients’ non-investing financial priorities, such as estate planning and taxes.

Good advisers have an external focus. They are constantly looking to add value for their clients. They ask, “What are the pain points this client is dealing with and how can I help?” Bad advisers are inwardly focused, asking, “What are my priorities? What actions do I want this client to take?”

Good advisers clearly articulate why their clients should care about a particular financial strategy. Bad advisers merely cover every feature, emphasising technical accuracy over nuanced insight.

Good advisers ask the questions. Bad advisers wait for the questions to be asked.

Good advisers are continually learning. Bad advisers are set in their ways, insisting that, “This is how I’ve always done it, so why change now?”

Good advisers build trust by following through on commitments and explaining all planning and investing strategies in a way clients understand. Bad advisers say, “Trust me,” and leverage human nature, get-rich-quick schemes, and fear.

Good advisers give the best advice they can, even if it’s boring and unsexy. They make sure their clients take their medicine, even when it doesn't taste very good.

Good advisers know when to say ‘no’ and have the courage to stand on principle. Bad advisers take orders from clients, even when those orders may be damaging to their long-term financial well-being, just to keep them with the firm.

Good advisers recognise that the future is unknown. They consider multiple possible outcomes and strive to maximise the probability of success in the face of an uncertain future. Bad advisers are 100 per cent certain how their recommendations will work out.

Good advisers err on the side of clarity. They are willing to explain the obvious to ensure everyone is on the same page. Bad advisers assume everyone heard and understood.

Good advisers fulfil their commitments to clients and co-workers on time, every day, because they are disciplined. Bad advisers forget or neglect to because they don’t value discipline.

Good advisers proactively define their role and their success based on what’s best for their clients. Bad advisers prefer to be told what to do.

Good advisers make things as simple as possible while still considering all necessary factors. They focus on what matters. Bad advisers complicate things in an attempt to sound smart or to confuse clients in order to sell more products.

The clients of good advisers know exactly how their adviser is paid. The clients of bad advisers have no idea, or worse, think they’re working for free.

And last but not least, good advisers are true fiduciaries.

What did I miss? How do you define a good financial adviser?

Are you interested in honing your leadership, management and communication skills? Visit the Enterprising Investor, a CFA Institute blog.

The author Isaac Presley, CFA, is Director of Investments for Cordant Wealth Partners, a wealth management firm focused on serving current and former Intel employees. He leads the firm’s investment committee and directs the company’s investment strategy and research. In addition, he leads firm’s blogging efforts on the Cordant Blog.

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