Reasonable people might think that the world is awash in financial advisors. Almost everyone connected to the investment/financial industry carries the moniker “financial consultant” or “wealth manager.”
How many of these people are truly advisors? One study pegs the percentage at just 6.6%! The rest are actually financial salespeople disguised as advisors.
The scarcity of real financial advice is reflected in the way entrenched financial and investment firms continually rebrand themselves. Investors are left to discern the distinctions and differences on their own.
The danger of selecting the wrong advisor is very high as most individuals will eventually fail financially without holistic financial advice. By financial failure, I mean running out of money before you run out of life. Clearly an outcome you want to avoid.
One of the most interesting foundational teachings of classical economics is the concept of the imperfect substitute. Some products and services are easily, or perfectly, substituted for another. A good example might be a Coke and a Pepsi (yes, some prefer one over the other, but they are essentially the same).
On the other hand, a car and a bicycle would be an example of an imperfect substitute. They both can transport you from point A to point B, but they are substantially different.
Just because every broker, banker, and insurance agent says they are a financial advisor does not mean their type of “advice” is a perfect substitute for what we provide. What they do and what we do are imperfect substitutes. Buying expensive packaged investment products does not equal holistic financial planning or behavioral guidance.
You Need Planning and Guidance from your Advisor
Words have meaning. We recently updated the descriptive words on the bottom of our firm letterhead to read “Planning. Guidance. Management.” Financial Planning, Behavioral Guidance, and Wealth Management aptly portray what we do. Most “so-called” financial advisors only give “a wink and a nod” to the planning and guidance segments of the process.
Past Performance is Not a Good Guide
The reason so many individuals focus just on investments is because of the emphasis on past performance. As consumers, we make numerous choices based on past performance and this often serves us well. For instance, we choose restaurants, hotels, and even doctors this way.
However, past performance, particularly the recent past, is generally a poor way to choose investments. Helping clients change this sometimes deeply ingrained belief structure toward a more reliable framework can be extremely valuable.
Behavioral coaching and advanced planning strategies require time and interaction within the context of a highly trusting relationship. Our overarching goal is to render peerless financial advice to our clients. This is the very expression of an “imperfect substitute.” Ready for a real conversation?