Column of “Big Joe” Clark: How do you trust your financial advisor? | Columns
Confidence in personality and confidence in competence are separate issues. Character confidence comes from believing that a person has your best interests at heart and loves them. Confidence in competence exists when you believe they can perform the task expected and required to achieve stated goals.
A common mishap is allowing what we naturally understand – confidence in personality – to override the need for confidence in competence.
I can count many people that I love and trust, including myself. Although I’ve come across people who say they don’t trust themselves not to cheat on a diet or go wild on Amazon, in general people trust each other. This is, in my opinion, the reason why many people turn to financial advisors they know personally, or even more often, allow themselves to do the job.
Confidence in competence is difficult to establish. How do you know if an advisor is doing the job that is expected and required of him? The natural default when someone claims to be licensed and in “the industry” is for us to assume they can do what they say they will. When you buy a car, a house, or even have surgery, after a reasonable feedback loop, you can determine if you bought the proverbial “lemon.”
Retirement planning is best judged by the outcome, but what can you do along the way to ensure tasks and expectations are met?
The first problem is the process. Do you or your advisor have a documented process for retirement planning, annual tax planning and a smooth investment strategy in a changing world? Documentation is essential to eliminate emotional reactions in difficult times.
Second consideration: is the process followed? It may sound elementary, but we often hear people say they have a process, yet their actions indicate they used a “hopeful” strategy more than a thorough plan. You don’t need a four-inch owner’s manual, but you and your retirement deserve a “here’s how we’re going to process, modify, and measure this outcome.”
The third step is really to take stock of the process. This is where most individuals tend to fail, in our opinion. If the plan is to have a certain amount of money at a particular time, or a particular return, the plan is deemed to work. Maybe for investment planning, that’s enough, but how does it address retirement, tax planning, and inheritance considerations?
Aaron Rheaume, CKA, director of financial planning at the Financial Enhancement Group, says, “It’s important to have a strong relationship with your advisor, but that relationship won’t get you the retirement you deserve. Process, detail, and consistent monitoring are what’s most important to your best financial journey.
We all have a trustee. Either you have hired a professional to treat your money as they would treat their own resources if they were in a similar situation – the lay definition of fiduciary – or you are acting on your own behalf.
Do you have a documented process? Does it work? Not sure? The Trustees of the Financial Enhancement Group can help you make this decision.
Joseph “Big Joe” Clark, whose column is published on Saturdays, is a Certified Financial Planner. He can be reached at [email protected] or