The world of
financial advice and investment management is a wildly misunderstood
industry. Many of us are under the
assumption that their role is to help you make money and create wealth. Sorry to break it to you, but it’s just not
the case. It took me over a decade of
being undercover in the industry to even recognize what it’s really about, and
another decade to figure out what to do about it. (Yes, I’m slow.) Maybe these cliff notes will come in handy
for one or two of you.
In the early
stages of my career in financial services, I was fortunate to move quickly
through a large banking institution into their Private Bank where we
specialized in working with the bank’s highest net worth clients. Sitting across from someone with ten, twenty,
or over 100 million dollars, I was insatiably curious to understand how they
got there. Saving a portion of my
paycheck, contributing to my 401(k), even with the company match and
exceptional investment returns, I couldn’t make the math work to my achieving
anything close to their levels of financial success. So, to satisfy my curiosity, I began asking
questions. It didn’t take long to
realize that their path was vastly different from the one I was on.
Within a few
months, it became obvious that with very few exceptions, all of our financially
successful clients had accumulated their wealth in one of three ways.
- They had built, owned, and monetized Businesses
- Many had found success through Real Estate, or
- They had Inherited from previous generations.
Then I began to
observe the work we were doing with clients.
We were supposed to be the most qualified financial experts, working at
the most qualified institution, with the most qualified clients. Yet we did essentially nothing to help
business owners grow, monetize, or successfully exit their businesses. For real estate investors, we would
occasionally lend them money if they didn’t really need it; but once they did,
or they had accumulated too many properties, we quickly lost interest. And for those that had inherited their
wealth, what I saw was money transferring to kids, kids blowing the money and ultimately
hating each other. I couldn’t help but
wonder what business we were actually in; it clearly wasn’t to help families
continue to create wealth. My
conclusion?
Financial and investment advisors aren’t in the business of helping families create or accumulate wealth at all;they simply move assets you’ve made out of accumulation vehicles and spread it around to protect long term purchasing power.
Lots of fancy math
is used to show statistical evidence of risk reduction, and as long as your
life and the rest of the world operates within the bell curve, there’s a
statistically decent chance you’ll end up somewhere close to what was
projected. Not many times have I seen
that happen, but nonetheless, it’s possible.
My second
awakening came when I began looking at what made clients actually implement our
recommendations. We created impressive
spreadsheets, graphs, statistics, and all sorts of complex math to show them
how they could get better returns, take less risk, out-perform their friends,
save on taxes, and who knows what else to improve their financial
positions. However, it seemed that more often
than not, the couples we met with wanted to go home and think about it; code
for thanks, but no thanks. What was this
all about?
A business coach
at the time challenged me to try something new with my next client
engagement. Meeting with a prospective
family, I stood in front of a large flip chart with a Sharpie pen and asked
them what was most important to them in
life. They looked at me blankly, I
smiled back. It was awkward for a few
moments, they looked at each other, then began speaking. As they spoke, I wrote on the chart. They shared what was most important, we
prioritized them from most to least important, and discussed why each of these
were on the list. After about 30
minutes, we had a comprehensive list, all of seven items. As we reviewed each item, something became
immediately clear. Not once did they
mention the standard deviations, alpha, beta, outperforming a benchmark, rates
on loans, or anything else I typically talked about all day. On their list, they had shared about their
family, their faith, stability, giving, relationships, making a difference,
ensuring their kids wouldn’t be entitled; and things vastly more important than
money. It was at this moment that it
became clear to me that money and financial resources were merely the tool, the
engine that could be designed to propel their life goals, dreams, visions, and
ultimate purpose. My role changed that
day.
Over the coming
months, I had more meaningful conversations with individuals, couples, and
families than in the entire previous decade.
They were sharing things with me about their business challenges, issues
with heirs taking over responsibility of family real estate holdings, not
enjoying the philanthropic work they were doing, their dreams, fears, visions,
and what kept them awake at night. These
families were less concerned about the return on their investments, and far
more concerned about the impact their success would have on their kids, their
relationships, and their communities.
There was an itch that no financial solution, advisor, or spreadsheet
had solved. As families opened up, my
ability to serve them grew. When the
solutions designed were aligned with what was most important, they also began
to take action on the recommendations.
With the added opportunity to serve, I needed access to a team that
could address their business needs, assist in aligning family interests, and
breathe life and clarity into their dreams.
As I presented my
findings and new engagement process to the leadership team at the bank, I
quickly became aware of another disappointing reality of the financial
industry. It was made very clear that
the extra several hours I was spending with new clients getting to know them
were not adding shareholder value. (At
the time, every activity we did had to be accounted for as a metric of
“shareholder value added – a topic for another article.”) I was instructed that if a product was not
sold by our second meeting, my process was ineffective. Silly and naïve little me; I was under the
impression we were in the business of designing financial solutions to improve
peoples’ lives. It was at that moment
that the financial industry became extremely simple, and clearly not about the
families we were meeting with.
Financial institutions are product manufacturing companies.Financial advisors are distribution channels of these products.
Nothing complex
about it; couldn’t be more simple. And
once we all realize this simple truth, getting financial advice becomes much easier. You simply need to understand the motivations
of the sales person across from you.
Now, are all
advisors and firms built this way? Of
course not. There are many that d0
approach their clients from a client-centric, solution-based perspective. However, in most cases, it seems it takes
years for these advisors to get to this point in their careers. Nearly everyone that enters the financial
industry begins their careers with an institution – a bank, insurance company,
wire house, brokerage firm, investment company, etc. The inherent reality is that they are thereby
trained by manufacturing companies to sell their products. There’s no real problem with this; that’s how
the industry earns profit and continues to create and deliver products, many of
which are great for investors. However,
as a consumer, it’s imperative you understand that it’s not about you.
For me, I left the
institutional world shortly after my awakening and assembled a team to be able
to effectively engage families looking to continue creating wealth, live with
greater impact, and maintain family continuity throughout the process. It’s been a process to re-educate the world
on this strange new perspective, but the results couldn’t be more rewarding for
our team and the families we serve.
I expect this
isn’t any break-through knowledge for many of you, but perhaps puts what you
knew or suspected into words. So, what
can you do about it? What do you need to
know?
Here are a few
tips I have shared with others that may come in handy:
7 Tips on Finding your Financial Advisor
- Be clear on your purpose for hiring an advisor in the first place. What are you really looking for? What’s missing in your life that you need fulfilled? Do you simply have a rock in your shoe that needs to be removed, or are you looking for someone to assess how the rock got in there in the first place?
- Find someone that is intently curious about you, you family, your dreams, your fears, and understands how your financial resources play into this.
- Look for someone that asks the right questions. Coming up with intelligent sounding
answers is easy. Coming up with the
right answers is a direct result of asking the right questions. Most of the time, the right question is
“why?”
- Look for someone that can and has effectively partnered
with other advisors in their own and other industries. Comprehensive solutions rarely come
entirely from a single discipline.
Your real estate solution will affect your tax and legal
strategies. Your investments may
need to be positioned to off-set the risk of your closely-held business
with exposure to a specific sector.
- Seek a leading advisor that has a broad knowledge and
mastery of multiple disciplines so they can identify the overall risks and
opportunities. Supplement them with
technicians and experts in individual fields. You shouldn’t be on your own to
determine how it all fits together.
- Have absolute clarity on how everyone gets compensated. To the extent you can, ensure that solutions are completely objective and not influenced by the need to sell a product.
- If family is important to you, look for an advisor or team that asks about and understands the implications of your wealth on your kids and other family members. The natural outcome of wealth in families is conflict and destruction, but it doesn’t have to be that way.
There are, of
course, plenty of other things to look for, but these seem to be ones that are
less often discussed. The world of
financial, estate, tax, real estate, investment, and insurance planning is not
a simple one. We’re never really taught
these things in school, and even if we were, most would rather have a root
canal than sit in a class on the US tax code, calculating bond yields, or
transferring risk through insurance. So
in all fairness, it’s a tough world to navigate, and has massive
implications. Making intelligent
financial decisions can have a significant impact on life, relationships, and
overall well-being. Don’t take it too
lightly, surround yourself with the right people with the right
perspective. In doing so, you’ll find
your way to financial confidence and overall peace of mind. The good news is that there are nerds like us
that cherish relationships and love this stuff!
Cheers!
