How Tough Should A Financial Advisor Be?

Disclosure: that is NOT my arm... But you probably already knew that!

In this author's opinion, financial advisors shouldn't bend to the whims of their clients in order to appease less than ideal client behavior. In the long run, the happiest clients are the ones that remember when their advisor held them accountable to do the things necessary to achieve their goals.

This blog post will examine some common scenarios where clients want to behave (or not behave) a certain way, but the financial advisor held firm to their recommendations because that's what was best for the clients.

A month ago I made an appointment with an orthopedic surgeon. A nagging quadriceps injury had kept me on the couch too long. I knew I needed professional help, and my own DIY tactics weren't getting me anywhere. My visit consisted of checking my health history, vitals, x rays, mobility tests, and finally a diagnosis and treatment prescription. My experience was very similar to the normal "onboarding" process a financial advisor employs with a new client.

The doctor explained what was going on inside my muscle, and how it was affecting my knees, hips, and overall leg strength. His recommendation was to begin aggressive physical therapy so I could return to cycling, something I enjoy very much. As it is my nature, I began asking lots of questions. I explained I had already been to a physical therapist and was seeing little to no recovery. This is when the doctor took the extra time to explain not all PT regimes are the same. A fresh set of eyes, backed by a proper diagnosis, will most likely get me on track. Without even blinking, he never backed away from his position.

Walking out of the medical office I grumbled, knowing there was a lot to do to get where I wanted to go. I was frustrated and overwhelmed, but somehow I knew the doctor's formula for recovery was probably accurate.

Why This Story Matters

It matters because my experience with the doctor was the same as what most clients feel at some point with their financial advisors. A good financial advisor asks a lot from their clients. We acknowledge that it's a pain in the ass to execute financial planning tasks like tracking down investment statements, meeting with an estate planning attorney (and paying their fee), or shopping for disability insurance.

The same way most people view financial planning tasks, getting up earlier than normal to execute my stretching, yoga, and strength training exercises is not fun. In fact, when I'm at my gym (in the company of meatheads bench pressing 350 pounds) I feel downright uncomfortable performing my leg lift routine. Even though it's not what I look like (minus the legwarmers), Jane Fonda represents how I see myself, which is pretty uncomfortable for me.

No one ever got anywhere that matters without being a little uncomfortable, the same as nobody looks forward to taking time out of their day to work on bettering ourselves. It's easy to push things aside, especially financial tasks that inherently make us squeamish.

How A Good Financial Advisor Truly Earns Their Fee

To understand the value of good advice, it helps to reflect on the cost of bad advice. Bad advice means pandering to human emotions by exploiting greed and fear. It means pursuing high returns in the good times with little attention to risk, and fleeing from risk in the bad times with no regard for return. Probably worse of all, it means giving in and letting clients dictate what's best in the hopes the advisor doesn't upset them by being resolute when asking for their commitments.

Good advice means taking the emotions out of the equation and showing clients what we can and can't control. We can't control the ups and downs of financial markets. We can control our savings and spending. We can control the risk in our portfolios through broad diversification, astute asset allocation and regular rebalancing. Last, we can control how we react to recommendations, even when it's difficult.

A good financial advisor should not just provide best in class investment and financial planning recommendations. They should take the time to followup with clients, inquiring whether they have actually done their homework or not. Extra rationale and care should be performed when a client wants to bail on their asset allocation during market turbulence. A good financial advisor not only prescribes the medicine, they followup to make the medecine is working.

Final Thoughts

Clients should understand they have the right to explain when they feel challenged. This is a much better option than not doing anything. Likewise, financial advisors need to express patience, empathy, and understanding when discussing difficult scenarios with clients. Advisors also need to recognize it can be uncomfortable being firm with clients when they don't follow their financial prescriptions. However, the decision to be firm is one of the best approaches a professional can take, as more often than not results in clients taking action they probably otherwise wouldn't have.

The best things in life typically don't come easy. If investors want a comfortable and secure retirement, they should expect a little pain along the way. At some point in their lives, the most fulfilled retirees decided it was worth some discomfort in order to cross the finish line in style.

#investorbehavior