Why I say Trust & Competency in Your Financial Adviser is Less Important | Investment Moats Skip to Content

Why I say Trust & Competency in Your Financial Adviser is Less Important

Cute Platelets that Clot and Binds

Last week, I wrote a post on Providend titled Here are the Top 3 Attributes of a Good Financial Adviser.

I thought it will give you some good examples how you could go about assessing a prospective financial adviser if you wish to engage one.

After I have published the article, I would like to share some thoughts about what goes into the thought process.

When I wanted to write such an article, I could not write it from my point of view since I have been more of a consumer, rather some of the feedback that I got from within the firm.

So this post sought to add more color and personal thoughts to it.

Why I left out Adviser Competency or Sophistication

An advisers ability to help you plan is very important and it is one of the main reasons we will go about engaging a financial planner in the first place.

However, one adviser explained to me why THEY normally do not include it as a good attribute. That is because your adviser SHOULD be sophisticated in their ability to plan. It is the reason why you engaged them.

This week, I came across an interview that explained this better:

But that’s assuming you’re doing a great job, you see. Doing a good job of what you do. And this is what it’s important for advisors to process. That’s not a value-add.

The fact that you’re really smart and good at what you do is no different than my cardiologist is really smart and good at what he does. I don’t want a bad cardiologist. And so it’s a hygiene factor. It’s not a value proposition.

I expect you know financial planning.

You’re a CFP, doggone it. I expect this is your expertise. And so what happens is that advisors go to great length trying to profess that they’re smarter than the next guy instead of just experientially demonstrating they’re better and more professional and more personal and more trustworthy, more relatable than the next guy. And the brains part of it comes out as well.

Matt Oechsli

Matt has a point. If I was hired to administer a server, you expect me to be professional and have that necessary competency to do that. There should not be so much thought process going into whether Kyith could administer it.

However, just in like IT world, we have to ask that question a lot of our colleagues because… the world is getting more complex. There are a lot of different kind of server administration. Over time, it is a challenge to stay current and know everything.

The Parallels to IT or Financial Outsourcing

More so, it is a question of whether standards are upheld.

Some of my friends who are current managers, or have to manage outsourced teams complained to me the problems of outsourcing.

Firms outsource their areas of work that they deemed less strategic, or where cost can be optimized.

That is OK (other than your friends losing their job and unable to find out in their domain) if it works.

My friends struggled with managing the offshore and outsourced vendor because they are severely lacking in the basic competency. It would have been better if you have some local staff here that are trained in this area.

I do agree that whichever field you are in, competency is hygiene. It is necessary and should be expected. The reality is that when standards are not upheld, end users like ourselves get the short end of the stick.

Why Trust and Integrity is Not Included

I did not include Trust and integrity because firstly, they are sanitary but more so, the advisers find that it is hard to measure.

If you meet someone representing their firm in a sales role, they will definitely say that they have your utmost interest at heart and they wish to deliver value.

You are looking up for a trusted financial planner because you do not believe the above is the case for all advisers.

There is no way to know unless someone you know have assessed their competency, and their integrity by engaging the adviser to plan for them previously.

So thus this is not included.

I think Competency and Trust are Uncommon because of the lack of Standards Enforcement

In reality, what was assumed to be sanitary to the clients, happens not to be there.

So even before we move on to talk about what separates the good adviser from the not-so-good, you might get into a more financial destructive position than being enhanced.

It is tough to find someone that have both sophistication and trust. You have friends that say they fully trust their adviser. However, when you reviewed the planning for them, you just shake your head.

Then on the opposite end of the spectrum, some planners comes across as competent. The plan comes out to be sophisticated.

So sophisticated enough that the client cannot figure out how the fees and how much fees they are actually paying, why their wealth is not going up even after 5 to 6 years.

What was Written in My Article Cannot be Easily Assessed as Well

I wrote three attributes that a good financial adviser should have:

  1. Knowledgeable
  2. Experience
  3. “Good Bedside Manners”

In truth, you do realize that you cannot use these attributes to suss out a good financial adviser at first glance.

You could only know if someone you trusted have engaged their services and have given you a good account about their services.

However, what are the metrics to ask your friends and colleague whether this adviser is good or not?

You can try and use these three attributes to see if your friend’s adviser is a good adviser that you can also engage.

I think Standards are Pretty Important

The problem is that most assessment may be based on how the adviser make you feel good.

You friend might not realize that their planner have given them a horrendous plan. They think it is a sophisticated plan. This is like your physician recommending that joining the kidney and the heart together is a good idea based on your circumstances.

We have been conditioned to be comfortable to go to most doctors when we have problems because we believe that the competency for most doctors are there. They have gone through a lot of professional training and the local medical standards in a developed country can be trusted.

However, when we hear more negligent cases, cases of private doctors having an economic bias in their recommendation, you will begin to feel that you have to be more sophisticated and personally managed your medical situation.

You can see the parallels to financial planning.

We do not wish to take learning all these things up, but the reality of the situation forced us to need to take necessary education so that we watch out for our own, and our friends well-being.

Explaining Things Easily shows Competency

When we talked to fellow investors, you can tell the depth of someone’s knowledge from the things that comes out of their mouth a lot.

If someone can explain something you are struggling to understand in a clear and succinct manner, that is a rare skill.

These concepts are already pretty hard for us to figure out, apply in investing. I do find that once you mastered it, and be able to repeatedly use it, you will probably be able to explain it better.

My colleague told me my original segment was not good enough and that I should use a better analogy.

I should use a documentary.

I do not watch documentary. I do watch a lot of cute anime like this:

After you watch the whole anime, I have a better visual understanding of what some of the things that happen in my body.

I think that is a good example.

One of my colleagues has a problem trying to explain some theological stuff to their kids. So she showed this to us:

Not trying to push some religion stuff but these probably helped a lot to explain something you felt it is important for them to know, in a correct and animated manner.

Let me know what you think.

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