In 27 years I’ve experienced many different market cycles. I’ve seen companies and investments achieve phenomenal success, colossal failure and everywhere in between. My industry will tell you a key benefit of working with a Fiduciary, like PCA, is that there are no undisclosed conflicts of interest between your best interests and my best interests.
This is true, however in this article I will apply some critical thinking you may find interesting. There is a truth that some clients would deny, and many in my industry don’t talk openly about. What is this truth as Ryan sees it? Clients don’t often know what is in their best interests.
The gap between experienced financial professionals and individual clients or Do-it-yourself investors is typically substantial. Think about the knowledge gap between a medical surgeon and you, regarding surgery. Think about the knowledge gap between a rocket scientist and you, regarding rockets. I’ve dedicated 27 years of my life to financial planning and investing. I’ve cultivated relationships and industry expert contacts which provide client access to expertise far beyond my own. Clients know what outcomes they want, such as lifestyle, security, goals, etc. Client’s rarely know what is in their best interests toward achieving their desired outcomes.
This does create a conflict of interest between a Fiduciary advisor and a client. As a Fiduciary, I am required to make recommendations in the client’s best interest. However, I cannot compel a client to do what is in their best interests. Put another way, if a client wants to invest or implement a strategy which is not in their best interest then I must decide to either help the client within their self-imposed limitations or not work with the client.
Sometimes I am comfortable recommending what is in the best interests of the client, that the client will allow me to do. Sometimes I say goodbye and wish them well on their own. Every case is unique, but my client and I must agree on mutual expectations. I’m not a go along to get along type of guy.
I never forget that a client’s money is their money and they have the right to make decisions not in their best interests. I get it. My point is not that I know better about what you want. You are absolutely the expert on the goals you seek. You know what you want. However, knowing what you want doesn’t make it so. I do know better what strategies will most efficiently lead to your goals becoming a reality. At the core of our successful client relationships is a mutual understanding and respect similar to any successful partnership.
Nobody would knowingly invest their money in a way that is not in their own best interests. So you may be thinking “what is Ryan talking about?” or “how does this happen?”
From my experience, here are several examples of how a person may not act in their own best interests:
• The most common example would be a client simply doesn’t know what they’re talking about, but they think they do know. Ego can be costly.
• A close relative of the first example would be bias. Bias occurs when a prior experience or hearsay colors a current decision. Facts matter. Disregarding facts or not wanting to know is common and costly.
• People fall “in love” with an investment, particularly their own company’s stock. Having 10%, 20% or more of your wealth in a single stock, any single stock, is not in your best interest. Emotion can be costly.
• People get caught up in the “hot investment”. Think about “gold fever” several years ago, BitCoin today or Initial Public Offerings (IPOs). This is speculation, not investing. Emotion strikes again!
• People invest the same at age 60 or 70 as they did when they were 40, often using growth strategies for an income objective. This is like using a screwdriver to put a nail in the wall. It works but not as well as using the correct tool, being a hammer.
• People often tell me they would prefer to enjoy all of their money in retirement as opposed to passing it on as an inheritance. However, these same people may use strategies to preserve principal and pass on as inheritance! Therefore they enjoy less lifestyle than they could.
• Related to the last point; Some advisors in the financial industry scare people in to not enjoying their money. If you leave your money in your account, the financial professional likely makes more money. Do you want to maintain principal for your advisor’s fees and inheritance or for your enjoyment? It is truly your choice.
The points above are familiar to most of our clients because of the time we mutually invested before deciding to work together. If you are not yet a PCA client, this article may appear puzzling or even provocative. Your values, goals and money are too important to me not to address candidly in my writing or in my office. I’d love to read your comments and respond to your questions regarding this article.