Investing Perspective: Sharing Is Caring

We look to financial advisors to help with the technical mechanics of financial planning, but increasingly we look for advisors to help in managing our financial lives; to serve as expert advisors; and to shape our behaviors to ensure that we can meet goals that are critical to us. DataPoints works with advisers that are focused on their clients well-being–many of whom operate under a fiduciary standard that demands that they never fail to do what is best for their clients.

Over twenty years ago The Millionaire Next Door (TMND) highlighted the importance of finding highly skilled professionals to advise us with respect to our financial affairs. Specifically:

Your ability to hire high-grade financial advisors is directly related to your propensity to accumulate wealth.

  • The Millionaire Next Door, p. 105

We consider this to be an important from the book–one that is often lost among the more exciting stories of economic outpatient care and frugality.

So if you’re working with an advisor or considering using one, maybe think about this: advisors have knowledge and perspective that they should be willing to share with you, knowledge and perspective that they apply in managing their own portfolios.

We recently examined some interesting data regarding the divergence of investing philosophy between advisors and their clients. We analyzed some of the data from our money-related attitudes assessment (Financial Perspectives). Specifically, we looked statements related to “investment outlook,” which is designed to measure a predisposition to be focused on short-term returns and related volatility and market movement.

Specifically, we examined differences in the data between a subsample of advisors and investors (clients that are not financial advisors). Our hypothesis was that advisors would have a long-term perspective as compared to the group of investors (a pretty safe bet). The results supported that hypothesis, but the average differences were much wider than we expected.

In fact, nearly all advisors included in our study (98.2%) disagreed with the statement “It’s important to focus on short term gains when investing,” as compared to 74.5% of investors. Likewise, more than 90% of advisors disagreed with the statement “frequent traders tend to be the most successful at investing,”  whereas less than 60% of investors disagreed with this statement.

So what’s the point?

The investors in this sample had a median annual income of $140,000 and a median net worth of $300,000, and were 43 years old on average. They represented managers, executives, doctors, lawyers, small business owners, and consultants, as well as other types of professions that require 4+ years of education. But, their income and level of education didn’t translate into a perspective or recognition about some basics about investing. 

Fortunately for most of the investors in this sample, they are working with advisors who have, at the heart of their practice, a fundamental drive to help their clients improve behaviors and build knowledge in order to achieve the best results possible (just to be clear: the best results for the client). These advisors use assessments as a way to support and help their clients in their quest to be financially successful, and they willingly share their expertise and perspective with their clients, a perspective that allows the client to gain knowledge and become more successful.

What does this mean for those seeking valuable counsel from a financial professional?  As stated in The Millionaire Next Door:

The more intellect, time, and energy you spend in hiring a financial advisor, the more likely you will be to find a suitable one. (p. 104).

If you’re seeking financial counsel, interview potential advisors with key questions about how they work with clients, how they charge for their services, and if they operate as a fiduciary. Given the results above, you might also want to include:

How will you share your knowledge with me to ensure my future financial success?

For an exhaustive list of questions to ask a potential financial advisor, see Jason Zweig’s piece in the Wall Street Journal here.

If you get a blank stare in response to any of these questions (or even a less-than-clear answer), consider going elsewhere.

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