Investments or You: Which Does Your Adviser Focus On?

Every investor wants to see their money grow – it’s a given. So, if growth is already the assumption when it comes to saving and investing, what describes the goal you have for your money?

As you build wealth, it is important to know why you’re building the wealth, not just learning about what investment to add to your portfolio. This may sound like common sense, but I wouldn’t be spending my time writing this article if it weren’t a common problem.

Many Advisers Commit Investment ‘Malpractice’

Discussing investment options without first having a strategic plan in place is like asking for a prescription without a diagnosis. I see a lot of “malpractice” (yes, pun intended) when it comes to investing, just as it would be if your doctor offered a prescription before establishing a diagnosis.

Subscribe to Kiplinger’s Personal Finance

Be a smarter, better informed investor.

Save up to 74%

Sign up for Kiplinger’s Free E-Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

Sign up

I was meeting with a doctor the other day and was working through getting to know her a bit, and in the middle of the conversation she asks the question many people ask, “What investments are you recommending?” As a financial planner, I struggle with these types of questions, because I believe that they are the wrong type of questions to ask.

My response was, if you met with a new patient and they were to ask you, “What prescriptions are you recommending?” what would you say? She responded that it wouldn’t be a question she would be able to answer, because what she prescribes would depend on what the patient needs.

Of course! Because that makes sense. Imagine visiting with your doctor and the 10 minutes spent with them is centered around a new drug that has promising results for some random ailment. They walk through explaining the clinical trials, then break down the cost to purchase the drugs, while offering a brochure as they ask you what you think about the drug.

That would be odd, wouldn’t it? Yet, this is exactly what happens in the investment world. The conversations people think they should be having with financial advisers revolve around investment options, past performance, fees, alpha, beta, standard deviation, market correlation, risk tolerance and on and on…

These conversations have a time and a place, but this information has nothing to do with solving a problem (i.e., retirement income planning). The idea that you can just buy an investment because it looks good on paper is an upside-down way of thinking. It is equivalent to buying the prescription without a diagnosis.

A Man Who Was Asking All the Wrong Questions

I talked with a gentleman recently who reached out after listening to one of my podcasts. When we connected to talk, it was clear that he was frustrated after having met with several advisers and hearing about portfolio management styles, approaches to diversification, benchmarks and performance. After all of these conversations, he was not feeling satisfied with what he heard, which led him to reach out to me for help.

It was apparent to me that he had sat through many sales presentations in an effort to find that perfect investment. But what I discovered in the first five minutes speaking with him was that he wasn’t actually looking for another investment but rather he wanted confidence about his goals for the future.

Inherently, people will try to circumvent a situation when there is a vacuum of knowledge or understanding about something by defaulting to what they already known and understand. For him, it was investments. He understood investments, and without knowing it, he was asking the wrong questions.

People who have accumulated wealth know and understand how to grow money, but when it comes time to begin using the money or protecting it, it can lead to confusion and uneasiness, which has them resorting back to what they know. It is circular reasoning that most often leads to an unfulfilled objective.

So, getting back to my conversation with the gentleman…

I asked him about what he was telling the advisers he wanted to do, and he replied that he told them he wants to grow his money. I said, yes – everyone wants their money to grow, but did you share anything else with them about what you wanted for your life?

I asked him that follow-up question because here again, when he was speaking with these other financial advisers, they were obviously sharing their investment ideas with him – but nothing he was hearing quenched his proverbial thirst. So, there was obviously something missing in the conversations, and if I was going to help him, I had to understand what was being overlooked.

He replied by saying that he wasn’t asked anything other than risk tolerance type of questions.

Getting to the Heart of the Matter Leads to a Surprise

In my endeavor to not be another failed attempt with a financial adviser, I dug a little deeper. I asked him if he saw a need for the money in the future. Did he need it for income or have a plan that required spending any of it? His reply was no, that he had no need for the money while he was living.

That last phrase raised my curiosity, so I asked, what do you mean “while you are living?” He proceeded to say, I want to make sure my wife is taken care of if I die.

BINGO! It was suddenly clear, and I said to him, I see the issue you’ve been having. I proceeded to ask him what the No. 1 priority in his life was right now. He replied, to make sure his wife is good if he dies. I replied by saying that taking care of his wife is exactly what the problem has been all along. He’s been having the wrong conversations with these other advisers.

He was not looking for another investment to purchase; he wanted his wife taken care of, and that involved having a strategic plan in place. We spent the rest of the call discussing how to take care of his wife.

Financial advisers are so focused on gathering assets to manage that they often miss the forest for the trees. They assume that everyone wants their investments to grow while trying to prove they are better than the next adviser without considering what the client really needs the money for, and that is a huge problem.

Your Future Is About More than Just Money

Financial planning is not about investments; it is about mapping out how to use money now and in the future. The investments and other products are simply used as a catalyst to fulfill the goals. Too many advisers confuse this, and in turn it confuses the public into thinking that they should always be shopping for the next best investment.

It is easy to suggest that the gentleman in my example should have known all along what the issue was, but it is not that simple. People, in general, don’t understand the disconnect between their needs and investments. I know this from the thousands of conversations I have with people with large investment portfolios, who are perplexed on how to use the money they have accumulated to meet their retirement needs. I explain how to do this in my podcast episode titled “Six Steps to Ensure You’re Ready for Retirement.”

But finding the right adviser to assist you in developing a plan can be tricky for the reasons I have already explained. You can learn more about what to look for in a financial adviser by reading my column, “The Financial Fiduciary Standard Explained.”

Here are a few things you can do to increase your probability of success and assist with getting a plan in place to meet your objectives:

• Ask yourself what the reason is for growing your money. Remember, there are specific things you need the money to do for you, focus on that. How will you use the money?
• Then pay attention during the next conversation with an adviser, noting how much of the conversation is about your life goals, concerns about the future, tax situation and other non-investment related topics versus how much of it centers around investment products. I see this as the 80/20 rule, 80% of the time needs to be spent on what you’re trying to accomplish, and the strategy for how to make that happen and the other 20% is about what products to use. Otherwise, you are just sitting in a sales presentation, not a financial planning discussion.
• Resist the temptation of asking about investments and force the conversation to be centered around your goals. Explain your goals for the money instead of projecting your expectation of return and risk tolerance, and if the adviser seems focused on their product or investment strategy, find another adviser.

That is how you get the right diagnosis and the right prescription.

Need help getting your thoughts on paper? You can get a copy of my, Financial Vision Guide for free by visiting the resource page of my website.