3 Reasons to Say YES to a Financial Advisor that Says NO
The new fiduciary standards recently introduced as a guideline for financial advisors forces them to put the best interests of the client ahead of their own, but it is a standard that is not without controversy. One particular question that haunts financial advisors at this moment is what to do when a client's desires do not match the best interests that a financial advisor identifies. What is a financial advisor to do in this scenario?
An Example Problem
Let us consider the case of a client who wishes to take on more risk than a financial advisor deems prudent for their portfolio. For example: buying the hottest new items, IPO's, using excess leverage, participating in an expensive, yet underperforming private investment, or pursuing any other ill-advised practices or decisions. Should the financial advisor simply allow the client to do this even though it is against the client's best interest?
The Simple Answer: NO
One of the oldest laws of economics is the principle of giving people what they want. However, responding to the laws of supply and demand is not the same as providing sound, professional advice to investors. Those policies of "giving people what they want" previously resulted in Wall Street creating products that were expensive, non-transparent, and pointless.
3 Reasons to Say YES
The first reason to work with a financial advisor willing to say no to certain investment strategies or schemes is the fact that you receive actual advice. When advisors are just answering your demands, they are not providing actual or accurate financial advice that is based in professional knowledge. A financial advisor should meet the following expectations:
• Be a trained professional working on behalf of a client's best interest, even if that means saying NO.
• Financial advisors are not there to just take orders or serve as clerks.
• Most importantly, a financial advisor should never simply tell a client what they want to hear.
Likewise, there are expectations incumbent upon clients if they want to truly save for retirement and experience success in their investing endeavors. The following expectations should hold true for clients:
• They should not seek or use financial advisors as validators or simple "sounding boards" for their ideas, but rather, use them as final decision makers in a longer process.
• Confirmation bias is not a good basis for making financial decisions.
• No opportunity should exist wherein an advisor can be blamed for missed opportunities that work out, or for the positions that go against the investor.
The new fiduciary standard exists to ensure that financial advisors are not promoting investment vehicles that line their own pockets at the expense of individual investors. The goal is to ensure that the advice doled out to investors is in their best interest, and more importantly, that advisors are not playing fast and loose with someone else's money.
However, this is a two-way street in which financial advisors should have the power to say "no" to clients who insist on doing things that they believe will be a success, even if they go against the advice of an advisor and their own best interests. As such, there is good reason to work with a financial advisor willing to say no to investors. For more information, contact Paul Miller CFP®.
