A while back, I needed minor surgery. I needed a surgeon, so I called a client who is a physician and asked him who I should see. He referred me to someone he thought would be just right for the job.
I went to see her, and everything was just as I expected. She told me what I needed to have done, we scheduled the surgery, and it was done.
At no time during the process did I feel the need to research or check her recommendation, nor did I think it might be a good idea to do it all on my own. I was referred to her by someone that I trust, and she was a doctor.
Maybe I should have gotten a second opinion, but the reality is I just didn’t feel the need, I trust this doctor. She was creditable in my mind.
Looking back, I think a few things had to happen in order for this to happen:
[1] I was referred by someone that I trusted.
[2] My experience with the surgeon was what I expected (e.g., clean, professional, etc).
[3] Nothing in the entire experience caused me to wonder if my trust was misplaced.
[4] I was convinced that I shouldn’t do the surgery myself. I suppose I could have, but that might have hurt.
NOW, I realize that there are some HUGE problems with this analogy based on the experience that most people have had with someone in the financial industry. That is something that the real financial planning industry is going to have to deal with, BUT it doesn’t change the fact that REAL planners DO exist.
There are REAL financial planners that view this as a profession, have years of experience, and can actually be trusted to treat your money as a prudent, skilled, trusted professional should. It’s time that YOU find one.
I have said this before, and I always get asked for guidance on how to find one, this is where things get tough. I wish there was a simple check list that would lead you to a planner that you could trust was competent and worthy of your trust, but I have not found one.
Here is what I would do:
[1] Ask everyone I know if they have a planner that they trust. Keep asking. It might take a while, but hopefully you know someone that feels like they can recommend their planner. Ask your family, friends, CPA, and attorney.
[2] Go meet with the planner. Take the questions from the SEC or the Certified Financial Planner Board of Standards.
[3] Trust but verify: One of the big lessons of the past few years is that we need to be careful. There are things you can and should do to protect yourself (I think that is covered by the SEC and CFP Board).
If you can’t find anyone that you can trust, keep looking until you do.
If you never find someone you trust, be careful not to hurt yourself.
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1) You KNOW you are not qualified to be the surgeon.
2) Most people think they know far more about money than they do. Thus, it's very difficult (embarrassing) to admit it to an advisor or planner.
3) Thus, they ask few questions, not wanting to seem ignorant. That is a big part of the problem.
4) Other main problem is that they don't know what questions to ask.
To me, primary question is: In today's world how important is asset allocation? If answer is: Still the single most important item, I'd stand up and find someone else.
Mark-
Great point about not know what to even ask. The other issue is not knowing
WHO to ask. It my neighbor that is a teller at the bank that right person to
ask, they handle money all day long. How about my brother-in-law the
insurance salesman?
Add to that the legitimate questions about long-held assumptions (like asset
allocation or buy & hold investing) and you start to see why this is so
hard…all I can say is keep looking. Trust, but verify.
I don't quite see the analogy in your referral example. You already had an in, and that “in” was your client that is a physician.
Consumers of financial services don't, for the most part, have that “in” with a trusted financial service individual that is able to provide referrals to specialists for the consumer's specific need.
Nevertheless, your guidance on finding a qualified financial professional is excellent.
As a doctor I appreciated this analogy.
Thanks Bill.
The point here is that when I needed to find a surgeon I did what most people would do: I asked people I trusted for a recommendation. Then I checked, verified, and in the end, TRUSTED the surgeon to do the right thing.
You might be right that most people might not know anyone to ask, but I would certainly hope that after asking family, friends, CPA's, and attorneys, they would run across at least one person that has a financial professional they can recommend.
Thanks Gordon!
It clearly has it's limitations, but I am glad the point got across.
Your comment made me think about one of the problems with the financial planning industry, as of right now there no uniform standard of care like there is in the medical profession.
That is why the work that the CFP board is doing is so important. To establish a uniform standard that you can expect when you go see a Certified Financial Planner.
I stumbled on your thread bcause i have been thinking i need to do something about my financial situation. i am deffinately stuck in the ratrace getting no where. make enuff $$ but too much debt and income all goes back out as fast as comes in.
Can any one tell me, can a financial planner help me “or do I need a surgeon?”
Thanks for the note. There are planners that can help with budgeting, paying
down debt, etc…
Start asking people you know, and look for an planner that charges by the
hour to help you chart a course. CFP board & the Garrett Planning Network
might be a place to start.
Thanks for the tip and guidance, I will start asking around immediately.
Sorry to write a book but I would take the process further…
> At no time during the process did I feel the need to research or check her recommendation,
Maybe that is being a bit too trusting? Even if someone is trust worthy they may have other biases… that aren’t good for you.
When I had surgery I did some research and independently confirmed the procedure was the standard treatment. It turned out that it wasn’t necessary, but it didn’t take that long and it seemed prudent. The piece of mind was worth the time spent.
> I was convinced that I shouldn’t do the surgery myself. I suppose I could have, but that might have hurt.
Amusing, but who actually practices do-it-yourself surgery? For financial planning there are some cases where you have to do it yourself. Consider a new investor starting with $0 who invests $1000 each year. Any Planner that takes a % of assets under management wouldn’t talk to them at all. They could purchase a plan for a fixed fee but that would likely be a big fraction of their year’s investment! Buying a copying of the Coffey House Investor or some similar book and making the plan themselves is a viable option. That plan could be as simple as a low fee target retirement fund.
I think there is a level where a professional becomes cost effective, say $200,000? At that point the optimization of the portfolio could potentially cover the cost of the advisor.
> [1] Ask everyone I know if they have a planner that they trust. Keep asking. It might take a while, but >hopefully you know someone that feels like they can recommend their planner. Ask your family, >friends, CPA, and attorney.
Can they tell a real advisor from a salesman? Do they compare their investment returns to the appropriate indices? If not how do they know their trust is well placed?
I thought your links for questions were a good start, but I would ask the following:
#1 How did you advise clients similar to me during 2007 and 2008? Why?
Looking back did they make good decisions- for good reasons? I think the best answer would be “Stick to our plan but save more/withdraw less.” The plan is solid but they are adjusting to the possibility of a harsher reality. Other minor changes are fine- say switching to a lower cost equivalent fund. However, if their reaction to 2008 was to scrap the old plan and try some totally new plan I would seek someone else.
#2 How do you pick the investments you recommend?
I would be wary of someone that looks at past performance, remember all the warnings that it isn’t a predictor for future performance? I would also be wary if they claim some special knowledge- it is really hard to beat the market, what is the chance you found the next Peter Lynch? If they could really beat the market consistently then they are wasting their time planning for you. They should be running their own fund and making billions.
I would like to hear minimal fees or covering different asset classes, which would naturally lead into choosing index funds.
#3 Describe a time when you convinced a client not to make a stupid mistake?
A good advisor should be able to prevent you from making mistakes. If they haven’t done that with other clients a lot they are unlikely to be good advisors.
-Rick Francis
Thanks Rick. Well put!
Trust but verify, seems to sum things up nicely.
I'd just like to answer the statement that planners who take a percentage of assets under management as pay won't look at someone planning on investing $1000/year: I certainly will. The fact is that looking after these people, working basically pro bono, pays more than just money. That's why I prefer the commission structure, because it enables me to help people who don't have assets to put under my management, rather than turning them away because my time is money.
I'd just like to answer the statement that planners who take a percentage of assets under management as pay won't look at someone planning on investing $1000/year: I certainly will. The fact is that looking after these people, working basically pro bono, pays more than just money. That's why I prefer the commission structure, because it enables me to help people who don't have assets to put under my management, rather than turning them away because my time is money.
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