I have spent the better part of my life in Rochester, Minnesota, home of the world-renowned Mayo Clinic. All of my now-grown children have had procedures there, and one observation my wife and I have made is how sensitive and caring the staff has always been.
At the Mayo Clinic this is by design. Early in the development of the clinic, the Mayo brothers insisted that the culture would be built upon three core principles: competence, caring, and integrity. These same principles can easily be applied to all professions, including financial advising.
The temptation to put your own interests ahead of those we ought to be serving can and does show up everywhere—a doctor recommending an unnecessary test, a mechanic recommending the wrong repair, or a financial advisor recommending the wrong fund.
When I speak to groups about what to look for in a financial advisor, I tell them to approach the process the same way they would choose a medical practitioner—by focusing on competence, caring, and integrity. I remind them that the advice they receive can impact their financial health just as choosing the right doctor can impact their physical or mental health.
There are four reasons I give for engaging with an experienced and competent financial professional:
- We don’t always know what we don’t know.
- We are tempted to follow the crowd.
- Individual investors historically underperform the indexes because they react emotionally to market events.
- Managing a portfolio is time consuming and stressful on a day-to-day basis, even if you’re really adept at it.
We Don’t Always Know What We Don’t Know
Many folks coming to you will rightly want to know why they should pay you for something they can theoretically do on their own. I’ll be the first to admit I have made more than my share of mistakes––many that could’ve been avoided had I worked with a professional (more on this later).
Making the wrong decision is inherently stressful. One of the biggest benefits you bring to the table is easing your client’s level of stress by both advising and consulting with them. The bottom line is that clients are looking for someone they can trust more than they are looking for someone who will tell them want they want to hear. You just need to help them understand that your experience and expertise means you can look out for and foresee things they don’t even know exist.
We Are Tempted to Follow the Crowd
Many of your clients won’t remember the dotcom bubble that finally burst in 2000 when the Nasdaq run that everyone thought would never end went off a cliff. The housing bubble of 2008 happened because people were cajoled into thinking houses could only go up in value––and that, too, went off a cliff. More 6 million foreclosures followed. Memories can be short and selective.
What’s the next bubble? Bonds? Risky income-producing investments? Cryptocurrencies? One thing you can be sure of is that human nature will not change: people will follow other people, and many will get burned. Just because someone can buy a stock on the cheap doesn’t mean it’s a bargain.
More important than the cost of an investment is its quality—and that’s something you can confidently provide.
Individual Investors Historically Underperform the Indexes Because They React Emotionally to Market Events
Historically, folks who are always trying to time the markets end up underperforming it. By contrast, financial advisors are able to keep emotions out of their decisions. Financial professionals who can help clients achieve their goals are well worth the expense.
Most folks have neither the expertise nor the attention span to successfully manage their portfolios. Morningstar reports that individuals who use a trusted financial advisor will, on average, see almost 2% more in returns than those who manage their own portfolios.
That 2% can add up. Be sure to be clear on what you are bringing to the table: ability, availability, attention, and focus on the long run.
Managing a Portfolio is Time Consuming and Stressful on a Day-to-Day or Week-to-Week Basis.
I see many people who devote a great deal of time to market news, and stock and fund prices in order to manage their own portfolios. In some cases, it’s become an obsession, and it’s obvious how much stress they are under. I often joke that do-it-yourself investors should invest in Procter & Gamble, the maker of Pepto-Bismol, because their consumption of it is guaranteed to go up.
There will always be stress around financial decision making, but working with you as their advisor makes their stress more manageable. Don’t sell yourself short when it comes to the value you bring to your clients. Help them understand what you can do for them. Remember, it’s not just about getting them a return on investment; you’re also getting them a return on life!
Be Sure the Client is Right for You
It’s important that you and your client are in sync, regardless of how much they have to invest. You need to establish a clear profile of the type of client you want to work with. After all, there’s no reason to work with someone who will always be second-guessing you.
In my book, The New Retirementality: Planning Your Life and Living Living Your Dreams…at Any Age You Want, I developed criteria for interviewing a prospective financial professional. I’ve taken that similar criteria and adapted it for assessing whether you want to work with a prospective client.
- What was your first impression of the individual? Was he or she personable and respectful, or officious and arrogant? You want to be sure a prospective client will respect your experience and advice.
- What kind of questions did they ask you? Were they asking you to provide something that you consider unreasonable? Were their questions inquisitive or combative?
- Did they listen when you asked questions? If you get the feeling you are not dealing with a good listener, move on. Life is too short to deal with difficult people.
- Don’t be afraid to disclose your own personal holdings if asked. I tell consumers that unless there’s a good reason that an advisor is trying to sell something they don’t own, clients will want to know why. Knowing you’re invested in what you’re recommending to them is a way to demonstrate trust and confidence.
- Don’t be afraid to share your track record. You probably don’t want to be a surgeon’s first patient. Consumers seeking financial advice feel the same way about your experience. Be willing to share your performance record, and have a list of references, including long-time clients, ready to go. Invite them to check you out at finra.org.
- Articulate a clear philosophy regarding investments and wealth building. If you don’t have a clear philosophical compass that has been fine-tuned through experience, you risk being (or becoming) a commodity who simply follows the crowd or the firm’s latest recommendation. Be comfortable talking about your mistakes as well as your victories––a good investment philosophy borrows from the lessons of both.
- Share how and why you got into this business. Your story can set you apart. It’s a great way to connect with potential clients.
Earlier, I referred to the fact that I had made my share of mistakes. When I was building an addition onto my house years ago, I decided I could save money by doing some of the work myself. I had a little experience doing electrical wiring and decided to tackle it. The contractor I was working with agreed to inspect my work before the official inspector came by. When the contractor came to the last connection I had made, he showed me how that connection could have easily started a fire. Then and there I decided some projects are far too important to try to tackle alone with a limited degree of experience. I tell this story to folks as a way to underscore that financial planning, especially retirement planning, is one of those projects.
