Practical analysis for investment professionals
11 December 2017

Good Financial Adviser/Bad Financial Adviser

Based on the number of notes I’ve written in the margins, the quantity of words I’ve underlined, and how often I pull it from the shelf, The Hard Thing About Hard Things by Ben Horowitz has my vote for the best business book.

It contains an invaluable essay — “Good Product Manager/Bad Product Manager” — that serves as a useful training document for the position and expands on the characteristics, habits, and mindset that separate — you guessed it — good product managers from bad ones.

Inspired by that essay, here is my take on what distinguishes good financial advisers from the rest:

Good advisers understand financial planning, taxes, estate planning, insurance, economics, and investing. But more than that, they know how each affects their clients’ lives. Good advisers have a strong base of knowledge and confidence.

Good advisers champion their clients and take responsibility for their financial performance. They do not give excuses. They build relationships over time to understand the complete context of a client’s situation. They take seriously the responsibility for devising winning financial plans that they can execute together with their clients. Bad advisers make excuses for poor performance, lack of communication, fees, etc.

Good advisers know about smart investment strategies but recognize that investing is only the engine of a financial life, not the navigational system. The client sets the goals to navigate toward.

Good advisers take the time to have a conversation with clients about their recent life events, priorities, goals, or objectives. Bad advisers spend their time telling clients about the performance of their accounts, their firm’s market forecasts, and a never-ending stream of hot investment ideas. Bad advisers don’t consider their clients’ non-investing financial priorities, such as estate planning and taxes.

Good advisers have an external focus. They are constantly looking to add value for their clients. They ask, “What are the pain points this client is dealing with and how can I help?” Bad advisers are inwardly focused, asking, “What are my priorities? What actions do I want this client to take?”

Good advisers clearly articulate why their clients should care about a particular financial strategy. Bad advisers merely cover every feature, emphasizing technical accuracy over nuanced insight.

Good advisers ask the questions. Bad advisers wait for the questions to be asked.

Good advisers are continually learning. Bad advisers are set in their ways, insisting that, “This is how I’ve always done it, so why change now?”

Good advisers build trust by following through on commitments and explaining all planning and investing strategies in a way clients understand. Bad advisers say, “Trust me,” and leverage human nature, get-rich-quick schemes, and fear.

Good advisers give the best advice they can, even if it’s boring and unsexy. They make sure their clients take their medicine, even when it doesn’t taste very good.

Good advisers know when to say “no” and have the courage to stand on principle. Bad advisers take orders from clients, even when those orders may be damaging to their long-term financial well-being, just to keep them with the firm.

Good advisers recognize that the future is unknown. They consider multiple possible outcomes and strive to maximize the probability of success in the face of an uncertain future. Bad advisers are 100% certain how their recommendations will work out.

Good advisers err on the side of clarity. They are willing to explain the obvious to ensure everyone is on the same page. Bad advisers assume everyone heard and understood.

Good advisers fulfill their commitments to clients and co-workers on time, every day, because they are disciplined. Bad advisers forget or neglect to because they don’t value discipline.

Good advisers proactively define their role and their success based on what’s best for their clients. Bad advisers prefer to be told what to do.

Good advisers make things as simple as possible while still considering all necessary factors. They focus on what matters. Bad advisers complicate things in an attempt to sound smart or to confuse clients in order to sell more products.

The clients of good advisers know exactly how their adviser is paid. The clients of bad advisers have no idea, or worse, think they’re working for free.

And last but not least, good advisers are true fiduciaries.

What did I miss? How do you define a good financial adviser?

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Image credit: ©Getty Images/JJPan

About the Author(s)
Isaac Presley, CFA

Isaac Presley, CFA, is Director of Investments for Cordant Wealth Partners, a wealth management firm focused on serving current and former Intel employees. He leads the firm’s investment committee and directs the company’s investment strategy and research. In addition, he leads firm’s blogging efforts on the Cordant Blog.

5 thoughts on “Good Financial Adviser/Bad Financial Adviser”

  1. Fantastic article. All true!

  2. Peter Eickelberg says:

    You covered this a little bit in one of the items, but good advisors are aware of and have a plan for dealing with their own biases. I wrote an article about this (shameless self-promotion) on Financial Poise to try to generate conversation about advisor biases.

    https://www.financialpoise.com/understanding-financial-advisor-biases/

  3. Kate Elder says:

    Here are a few others that I would suggest based on my 25 years in this business:

    1. Good advisors treat their staff well. Bad advisors demean their staff.

    2. Good advisors reply to client calls/emails within 24 hours. Bad advisors exceed this period. Horrible advisors don’t reply at all.

    3. Good advisors participate in community outreach/charitable events because they want to. Bad advisors are active in their community simply as a means to generate business.

    4. Good advisors are humble. Bad advisors think they are “gurus”.

    5. Good advisors know the limitations of their knowledge. Bad advisors think they know everything. (this is different than #4)

    6. Good advisors progress thru the stages of financial planning at the client’s pace. Bad advisors show up at the first meeting with an application in hand.

    7. Good advisors take responsibility if something is forgotten or an error is made, no matter how small. Bad advisors blame their staff.

    8. Good advisors practice what they preach. Bad advisors have debt or spending problems, use different products than what they recommend to their clients, don’t have a succession plan and/or don’t have a will.

  4. Chris Henry says:

    This article rings so true for me. When I entered financial services as an adviser, I did so from a background in financial journalism. I guess that put me ahead of the pack, somewhat, but I am continually amazed at how little advisers know about economics and, more importantly for their clients, the CURRENT economic climate. They are taught and told to increase their commission income, so it stands to reason that whatever they do for a client, they do for themselves, first. Perhaps fee-for-service will level the playing field; I don’t know. I do know that far too many clients are being poorly serviced.

  5. Porter Cole says:

    I give this piece a B minus. Too much self=adulation by the fee-only crowd, which crowded out the good stuff. [To heck with] NAPFA.

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