Not all advisors are created equal. It's why it's so important for retirees and clients to do their due diligence. A good client and advisor relationship will have a mutually understood framework or rules of engagement. For example, a good advisor for me may not be a good advisor for you. I may need an advisor who is very blunt and tells me exactly what I need to do, conclusively. You may need an advisor that walks you through why something makes sense, is gentle in how they recommend and who offers you multiple options for you to decide between. This is the relationship aspect of financial advising and it's incredibly important to the overall health of any relationship between an advisor and client.
Most people understand this and will (hopefully) shop financial advisors until they meet someone they trust and feel comfortable working with.
SIDENOTE. If you are not working with an advisor you trust and/or comfortable with please let me know and I am happy to refer you to advisors that represent the values of professionalism and integrity that I consider in the top 1-2% of the industry.
Most advisors learn early on that some of their clients are creative and open minded and some are not. This will often guide the advisor in determining what options are actually suitable or ideally in the clients best interest, but also fall into the category of an option the client is willing to entertain. Think of it like a Venn Diagram, the recommendation of an advisor needs to make sense for the client's financial situation but also something the client can stomach. If it's not both of those things it will probably never be implemented. It only takes a few failed recommendations for advisors to learn which clients are open and which are more conservative or constrained in how they think.
What a lot of people don't realize is not every advisor is equally creative or even open to innovation.
Believe it or not, there are advisors out there that still continue to believe that the same mutual fund family is entirely appropriate for every client they sit down with as their one and only recommendation. For the record, none of us need to be a financial advisor to know this is a major red flag. The most important point here is this. The average client has enough on their mind that they aren't typically trying to determine if an advisor is creative or myopic; the typical client is concerned with competency, trust, credibility, and simply trying to understand the recommendations themselves.
We can see this most clearly in housing wealth. Most clients will never think to ask themselves 'gee I wonder if my advisor has considered the wealth in my home and my credit, not just my investments and savings.' What's really telling is there is a huge difference in this type of thinking and advice giving in different types of advisors.
Recently the University of Illinois and The Academy of Home Equity In Financial Planning had a survey go out to a number of advisors. The advisors were classified by type of specialization if any, average household wealth of their clients, advanced designations and level of experience (years working as an advisor). The actual survey questions involved the likelihood to recommend equity, credit and reverse mortgage tools. Here is where we really get a chance to understand if advisors have a good relationship with housing or not.
Unfortunately, there seems to be a lot of work that needs to be done here. While a number of advisors are comfortable speaking about equity, credit, reverse mortgages and housing wealth, many still are not. What really popped out from the report was that advisors with:
1. advanced education
2. significant experience and
3. working with households of $500,000 or more in assets
were the most likely to discuss these topics. Furthermore we see that inexperienced advisors, and advisors without specialization and advanced designations failed to have these conversations consistently.
Arguably, we could define this classification as your elite financial professional vs the ordinary.
This is incredibly important to understand. Housing wealth comprises, for the typical American retiree, an extraordinary percentage of their overall wealth, usually around 60-80%! To ignore the topic of housing wealth, to fail to discuss credit to be biased against reverse mortgages is a major failure of the typical advisor. This is the type of failure most retirees cannot afford when it comes to planning. We only get one shot at retirement we need to do it right!
If you're reading this and you are at or near retirement - it's time to ask yourself; is my advisor as open minded as I need them to be?
and, if you're an advisor, and you're not discussing these topics with your clients - simply ask yourself this; do I want to be an elite advisor, or, do I want to be just like the rest?
Josh Blum
