When you buy a car, you have some idea of what you want. Coupe, sports car, SUV, compact. You see all of the different types when you are driving and researching. It’s said now that 90% of car buyers have all of their research done online before they enter a showroom. All you require is a test drive. The decision is already made from that online research.
When you buy a house, you know what you need or want. You know the neighborhood. You know the schools. From what the realtor posts, you can literally do a video tour of the house, so again, when you show up to review it, you have almost always made most of the buying decision.
Yet in both cases, you are likely to only own that thing for something under 10 years.
So why don’t people do more research on financial advisors? First, financial advisors do not have nearly as specific web sites as cars or houses. Their product is far less tangible, all you really see is a web site and maybe some well-produced brochures. Yet, people make lightning-fast decisions on someone whose approach to a particularly important problem will affect them for a far longer time, perhaps the rest of their life.
Here are mistakes people make all the time when hiring a Financial Advisor, They:
- Hire a friend or a relative. This is a mistake because you have now hired someone you really can’t fire. So many things can happen over the years that should lead you to change Advisors, but now if you change it hurts either you family standing or your social arrangements.
- Hire someone for life. Financial Advisors are situation specific. There are dozens of reasons why you will need to change advisors over the years. You should always be interviewing. Always be evaluating if and how your needs are changing. (Note: This ongoing evaluation should also be the case with your tax advisor and perhaps your estate attorney.)
- Have changes in their needs and don’t change financial advisors. I see this in two different circumstances, equity compensation and liquidity events. Equity compensation is unique. There is strategy necessary in stock and option exercise decision-making. Liquidity events change peoples’ financial needs literally overnight. Most advisors aren’t prepared for this step-change in their client’s level of wealth.
- Keep the advisor after the advisor’s business model changes. One example (of many): The advisor buys or inherits another advisor’s book of business. She goes from handling a bunch of retired clients with IRAs to handling twenty multi-participant retirement plans with their very administrative workload. He has no staff to delegate the administrative work to, so he becomes a retirement plan administrator and not a private client counsellor.
- Don’t evolve with technology. The pandemic drove financial advice into the digital age. Companies do not want to mail statements; they want to save the postage and e-mail everything instead. Those left behind are put at risk. But in many, many cases, clients do not want to change.
- Hire someone from a bank, believing that bank has an information advantage over others. You are being swayed by advertising. If your bank is big and a household name, the public believes there’s an information advantage. There is not.
About Michael Ross
Michael Ross is a 30+ year veteran financial advisor. After 30 years with Morgan Stanley, he is now an independent financial advisor who specializes in helping business owners exit their businesses and move to the next phase of their lives.