May 17, 2019

(Opens door, shows self out.) When it comes time for some to reach out for help in the world of financial advice, the unknowns can feel overwhelming. While it’s true that a multitude of professionals exist in the space and land on all parts of a broad spectrum, it does help to understand what you’re getting into prior to engaging with someone. And reasonable people can disagree about what services are most important or most valuable, but as a client or prospective client, knowing what can be might help you figure out what it is that you want. It can also save you from wasted time and disappointment. The following is more about how we engage clients and what we see more than it is a black and white statement about the industry as a whole – it’s impossible to make sweeping generalizations about people who practice so differently. But it’s also about helping people to be introspective prior to engaging with an advisor, so that you can get the most out of your engagement and so you can honestly assess your motivations for working with an advisor in the first place.

What can you do before meeting with an advisor to help make sure you find value in what they do? The first and most obvious is to decide what it is that you’re looking for in the first place. If your most important goals revolve around tax planning and tax mitigation strategies and you engage with someone whose only focus is insurance or investment management, they might perform their work at a high level and still leave you disappointed. What if you don’t know what you want? If you’re not sure, I think the best thing you can do is to meet with multiple people to find out what they have to offer. What type of services do they provide – tax planning, insurance, social security maximization, investment management, financial planning, all of the above? You can typically get all of this information in the first one or two meetings with an advisor and meeting with multiple will give you a reasonable baseline for comparison.

We believe that not knowing what you’re looking for and knowing very clearly can both be reasonable starting points. If you go into a meeting knowing that it’s important to come away with a comprehensive financial plan that addresses the various aspects of your situation – from retirement withdrawal management and social security planning to investment management and estate planning – it should not be hard to determine whether an advisor or group can deliver that. If you don’t know, interviewing multiple advisors can help you find out. The most significant issues tend to occur when the underlying goal – whether intentionally or subconsciously – is using an advisor as a quick fix or a band-aid on a wound that was years in the making. What I mean by that is that occasionally, individuals will engage an advisor to avoid responsibility for the results of previous poor decision-making. This could be poor investment decisions, chronic under-saving, unrealistic goals, and the list goes on. The way I feel this typically manifests itself is in overly optimistic return assumptions, aggressive withdrawal rate demands and a general attitude that, if an advisor can’t deliver a perfect world outcome, then they’re not worth anything.

Ultimately, advisors are and should be judged by the value they provide and often, that’s closely tied to their level of experience. We believe the best outcomes occur when clients openly engage advisors as subject-matter experts, planners, and teachers. If an advisor gives you tax advice and you follow it and they have an accurate view of the tax code and its application, the outcome is fairly certain. The same can’t be said for investment management. We’ve had ten year periods where equities have had returns in the high teens and ten year periods with negative total returns. No advisor, no matter how good, can control the return environment. Different strategies certainly produce different outcomes, but none of that comes without trade-offs. One of my favorite quotes about investing (paraphrased) is, ‘risk can’t be eliminated, only transformed.’ You can invest tactically in an attempt to avoid large drawdowns, but then you may be opening yourself up to the risk of underperformance. You can buy and hold and attempt to achieve historical equity or balanced portfolio return numbers, but you may run the risk of investing in a historically difficult timeframe. You can invest in conservative securities, but you may run the risk of your purchasing power being lost over time and potentially interest rate risk. The point is, you don’t control those things.

It’s my firm belief that whether you’re happy with your advisor or not will come down to expectations – both your advisor’s and yours – and whether your goals center on controllable variables. Your advisor can build portfolios that are sound based on historical precedent, but they can’t control the market. Your advisor can tell you what a reasonable withdrawal rate is and how to withdrawal money most efficiently, but they can’t control how much you’ve saved prior to engaging them or your income needs. You may go to an advisor and demand a certain return or an uncontrollable outcome and some (many?) will engage you because they want the business. Just know that your potential for success or failure in that instance could be up to chance and likely reflects little about the decision-making skills of the advisor. The biggest promise doesn’t always lead to the best outcome. We think you’ll be happier if you determine what success or failure means based on a mutually agreed upon set of expectations. If both your advisor and you do your part, I think there’s a better chance you’ll get what you hoped for.

This is meant for educational purposes only.  It should not be considered investment advice, nor does it constitute a recommendation to take a particular course of action. Please consult with a financial professional regarding your personal situation prior to making any financial related decisions.  Past performance is not indicative of future results.  Investing involves risk, including the potential for loss of principal.  05/19