June 29, 2018

In a previous blog, I wrote about what good advice looked and felt like and what it would cost you. I touched on some things that I thought were important, but in terms of being on the receiving end of it and not knowing for sure whether or not the advice you received was worthwhile, I thought it made sense to expound on that a little bit. Reason being – because of the knowledge gap that exists between advisors and their clients or prospective clients, the clients sometimes don’t know how good the advice they received was until it’s too late. Hopefully you come away from this better armed. What follows is my view of some things that are harbingers of good advice. For the sake of simplicity, we’ll assume you’re seeking retirement advice, but a similar thought process could apply to anything from cash flow planning to estate planning.

First things first, and this is a topic that I constantly discuss with people – if you’re going to ask someone for help with a problem you have, you’ve already made the determination that you don’t have the knowledge and/or experience to do it on your own, that’s self-evident. In spite of this, however, it makes sense in most instances to come away with a base level understanding of the advice that you end up taking. There are countless stories of people who’ve gone to an advisor and said, I trust you to do whatever you think is right, and their outcomes have been perfectly acceptable and pleasant. There are also novels filled with the likes of people who became victims of the Bernie Madoffs of the world. I wouldn’t have a job if everyone knew what I know, but if I fail to give people a simple enough explanation of what to expect from working with me, I also fail to give them the tools to respond appropriately to the things that don’t go perfectly – it’s at that intersection that feelings of failure and disappointment happen. You don’t need to be an expert, but if you don’t know approximately where you’re going, there’s a decent chance you’ll end up on ‘any road.’

That leads to the next point – you’ve received some advice, maybe some type of investment or financial plan or both. What can go wrong? It’s a simple enough question, but pretty important in the world of finance and investing where things very rarely go exactly how we plan. If you’re 65 and are planning on a 30 year retirement and are fully invested in the stock market, what happens if it goes down 50%? Are you using that money for your daily cash flow needs? Can you still afford to receive the same level of monthly income or will your lifestyle need to be adjusted downward? Can you handle that physically, mentally, emotionally, and financially? You need to consider this all before it may happen. In Nick Murray’s books he called this doing life boat drills – you don’t do life boat drills when the ship is already starting to sink. This dovetails with my personal planning philosophy – you can show people what really rosy scenarios look like, but it’s rarely all that useful. If things go really well – meaning you don’t spend too much, markets go up and your investments perform in line with them, there’s probably not much to worry about. Planning is to help you deal with inevitable setbacks and give you the conviction that the plan you have in place will help you navigate times when all is not well. Know what can go wrong and be confident that you can sustain.

Considering that the second point is, ‘what can go wrong?’ there has to be an admission that something can, in fact, go wrong. If the entire conversation revolves around all of the benefits and there is no discussion of drawbacks, consider that you may not be looking at the entire picture and for your own sake, ask. ‘I can understand all of the positives involved in this particular route, what are the negatives?’ This line of questioning should help you confirm what you’ve already heard or lead to more questions. All (retirement) planning routes, whether they involve a reliance on the market or whether they rely heavily on guaranteed sources of income, have deficiencies. You have to know whether or not those deficiencies are acceptable to you.

Now let’s say you’ve received the advice and, in general, it feels good to you. People like to think of themselves as rational beings that make decisions based on cold hard facts and logic, but truthfully, emotion and intuition tend to play a pretty large role in our decision making, especially as it relates to doing business with other people. While it’s important to have good rapport with your advisor so the communication comes easily, it's also important make sure that the advice itself stands up to scrutiny. What is the advisor’s advice based on – some historical context? Behavioral finance research? Easily verifiable or at least sensible data? All of those are reasonable options – good stories, however, don’t fall into this category. Good stories can help advisors turn jargon into advice that’s more easily understood and relatable, but they should do no more than that. If you’re buying into advice because some "miracle" solution gave your advisor a rags to riches story to tell or because one of the over 100,000 portfolio managers across the planet is supposedly the smartest and he or she just happens to be working for you, re-assess your decision making process.[1]  There’s a time and a place for great stories and that’s when we’re talking about my high school basketball prowess over cocktails and the truth isn’t important.

This is the type of post that could go on for several more paragraphs, but for those of you wishing it would’ve ended 800 words ago, I’m going to get this last one in and wrap it up. If the advice you received makes you feel as though the path to your financial independence – pursuing your goals – is easier than you would’ve anticipated and at no point do you feel any discomfort, take a step back and make sure that what you’re being told is reasonable. I’ve had clients at times in the past that were so conservative that they almost couldn’t have run out of money if they tried and because their expectations were so low, they came away surprised that they were in such great shape. It happens, but I wouldn’t say it’s the norm. Most advisor-client relationships start because the client has a pain point and they want the advisor to help relieve them of it. Solutions are offered, but it’s rare that they come without any sacrifice – no change in investment strategy, no modification of lifestyle or retirement age or Social Security Claiming strategy, no situation that would cause the client to have to reassess their goals. If you’ve done an extraordinary job of handling your finances before you engage an advisor, this is certainly possible, but if you go into a situation thinking you’ve got no chance and come away from it feeling like you’ve stolen something, make sure that you’re not the one left holding the bag.

(I wanted to add a little piece a few weeks after originally writing this post as I came across a Seth Godin blog that fits with some of the premises of this post – he was talking about ‘The shortcut crowd’:

"Often overlooked, though, is the fact that in many markets, particularly involving personal finance, small business and relationships, there are people who are obsessed with the shortcut.

They want something that’s too good to be true.

They respond to big promises that offer magical, nearly instant results.

…There are complicated reasons for wanting this sort of engagement. It might be that the promise and the pressure of these pitches create endorphins that are pleasing. And it might be that deep down, this market segment knows that things that are too good to be true can’t possibly work, and that’s fine with them, because they don’t actually want to change–they simply want to be able to tell themselves that they tried. That the organization they paid their money to failed, of course it wasn’t their failure."[2]

The ultimate point being – find someone you trust, but be responsible for the decisions you make along the way.)

In the end, the best advice I can give you to help verify that you’ve been given good advice is to just use common sense. Good advice shouldn’t be solely based in moving your emotions or hyperbolic or overly promissory. Good advice should be based on facts, it should be boring, it should give equal weight to both the good and the bad, it should prepare you for all potential outcomes, and it might just make you feel uncomfortable. If you come away with that type of impression, I think there’s a good chance you’re on the right track. If you come away convinced that I was an ankle injury away from the NBA, lock yourself in a room without a pen.


This information is provided for educational purposes only, is believed to be accurate, is not intended to provide specific financial, legal, tax or other professional advice and should not be applied or relied upon in any particular situation without the advice of your tax, legal and/or financial services professional. The concepts presented may not be suitable for every situation. Income guarantees are based on the claims paying ability of the underlying insurance company.  Investing involves risk, including the potential for loss of principal.

LPL Financial has no affiliation to George Lois, Seth Godin or Nick Murray and any comments and/or opinions mentioned are those of the authors, not LPL Financial.


[1] https://www.statista.com/statistics/630524/number-of-regulated-open-end-funds-worldwide/

[2] https://seths.blog/