Our society continues to move toward self-reliance and independence. A quick rundown of cable television shows illustrates just how popular the idea of doing things yourself has become. I’m all for trying new things and learning as I go, but I also need to be careful that I don’t make the mistake of trusting too much in my own abilities and ignoring the wisdom of others. Scripture tells us that the wise person seeks out advice from those around him while the fool trusts in his own understanding. Here is a sampling of verses relating to this issue:
Proverbs 12:15 – “The way of a fool is right in his own eyes, but a wise man listens to advice.”
Proverbs 15:22 – “Without counsel plans fail, but with many advisers they succeed.”
Proverbs 24:6 – “…for by wise guidance you can wage your war, and in abundance of counselors there is victory.”
Personal finance is one of those popular do-it-yourself areas. People continue to push the idea that you can do it on your own and be as good as the professionals. So, how do you know when you should do things on your own and when it’s worth it to pay for professional advice?
Based on the wisdom we find in Proverbs, I believe the immediate answer is that the wise person would never simply rely on his own knowledge. At a minimum, we need to surround ourselves with wise counsel and gain input and wisdom from them. Even at that, there will likely come a time when our issues become too complex or need more care and detailed attention than we can get from non-professional counsel. In those cases, we will want to consider looking for wise counsel from someone that has the professional knowledge we need.
At this point, we’ll need to have an idea of what to look for in a financial advisor so we can separate the wheat from the chaff. Many people claim to be financial advisors. Finding one that will actually provide you with wise counsel is the key. That all begins with a proper understanding of what to expect.
What to Look for in an Advisor
If you do an internet search on this topic, you’ll find all kinds of lists with little details of the things to look for in an advisor from certifications to how they answer specific questions. There is good information in those articles, but I want to focus on the aspects that will better indicate character and if the person will serve you well in the end.
1. They Educate You – A good advisor is one that is looking to help you gain wisdom, not just have you blindly follow advice. Remember, we’re looking for advisors to fill the role of wise counsel and as such, they are not only giving you their opinion, but also helping you understand complex issues so that you can be a more informed decision maker. As a result, they are not looking to make decisions for you, but ultimately equipping you to make your own decisions.
2. They Are Comprehensive – It’s helpful when advisors are willing and able to be a sounding board for all your financial decisions. While they may specialize in a given area, they can still serve as a good resource for other issues and either research them with you or direct you to another trusted person that specializes in that area. Comprehensive advisors are more valuable because they take the time to get to know you and all the details of your life. Good advice requires complete information and when advisors only know one aspect of your life, there may be important details that haven’t been considered.
3. They Are Independent – Some advisors have limited products to offer you or are contracted with a single company. Just like a carpenter with only a few tools, it’s a lot harder to solve problems when you have limited resources. It’s the old adage that when the only tool you have is a hammer, everything starts to look like a nail. These advisors will be tempted to convince you that what they have to offer is the best, but no single product or company is going to be the best solution for every problem. You need someone that can evaluate all the options and bring you the best solution. Good advisors will get to know you and your situation and offer you the same solutions they would use.
4. They Are Incented to Help You – While good advisors shouldn’t base decisions on what they will get paid, it can present a conflict for even the most well-intentioned ones. It’s important to know how they are compensated and make sure they have an incentive to accomplish your goals. Some investment professionals are paid commissions when they sell a product. That’s not always a bad thing for the consumer, but it can motivate the advisor in the wrong way. Since they are primarily paid when they get a new client, they will be incented to look for new clients which could cause them to neglect their existing ones. If you’re looking for ongoing advice, you need to make sure they are being compensated to care for their existing clients and stand to lose some income if they don’t. After all, you don’t hire a contractor to remodel your house and pay them in full before they start.
5. They Have Integrity – You are trusting this person to guide you to solutions that are in your best interest. Any hint of them not doing that should be a red flag. Some advisors hold to the fiduciary standard that requires them to work in the best interest of their clients. Advisors that aren’t fiduciaries are held to lesser standards, where the recommendations only need to be suitable for your situation even if better solutions may have been available.
6. They Keep You from Making Emotional Decisions – Emotions often cause us to make poor decisions. Investors can tell you they should buy low and sell high. Unfortunately, most do the exact opposite in practice. In a study done by DALBAR for the 10 year period from 1993 to 2012, the average annual return for a stock mutual fund investor was 4.3%, while the S&P 500 index averaged 8.2% over the same period. Another, more extreme example is the CGM Focus Fund, which averaged 17.9% for the 10 years 2000-2009. The realized return for the average investor in that fund over the same time period was a loss of 10.8% per year. It’s hard to believe it, but the average investor earned 28.7% less per year than the fund they were investing in because of emotional decisions during periods of high volatility. In short, they bought high and sold low. Our advisors need to be the ones that talk us down from the ledge when we’re ready to make a bad decision.
7. They Integrate Biblical Wisdom – If we understand common grace, we realize that even those that don’t know Christ can find truth and have wisdom. That said, we still need to realize that God’s Word is our ultimate source of truth and Proverbs 1:7 tells us that “The fear of the Lord is the beginning of knowledge.” While secular advisors can be excellent at what they do, there will always be a limitation to the amount of help they can provide. If you’re looking for comprehensive advice, only the Christian advisor will be able to integrate your faith into your financial plan for you. Why settle for only financial help when a good Christian advisor can counsel you not only on financial issues, but also spiritual ones?
We can’t be experts in all areas of life and even experts need wise counsel, whether that be from a friend, pastor, or financial professional. Surround yourself with wisdom, but also recognize when your need goes beyond general advice that you can get from those individuals. If your situation warrants hiring a professional, look for someone that will genuinely care for you and has a desire to serve. Good advice is well worth what you pay for it. As we see in Proverbs 20:15, “There is gold and abundance of costly stones, but the lips of knowledge are a precious jewel.”
Brad Graber, CFP® has been working with clients on personal financial planning and investment issues since 1996. He invests his time mentoring and educating individuals on ways to be better stewards of the resources God has entrusted to them.
***Disclaimers: The information contained in this article is general in nature, is provided for informational purposes only, and should not be construed as investment advice. I cannot guarantee that all information is accurate, complete, or timely. Any performance related material is for information purposes only. Past performance is no indication of future results and should not be used for making investment decisions. Performance data was provided by Morningstar. The information in this article should not be construed as investment advice or a recommendation of any particular investment. Please seek out professional investment advice before investing.