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Does Your Advisor "Eat Their Own Cooking"?

Does Your Advisor "Eat Their Own Cooking"?

February 16, 2024

Does Your Advisor “Eat Their Own Cooking”?

 

As a financial professional, one of my pet peeves is whether or not financial advisors “eat their own cooking.”  After reviewing hundreds of portfolios over the years, one thing has become apparent: investors overlook the critical question of how their financial advisors invest their own money.  The best financial advisors have walked in their client's shoes while consistently making prudent financial decisions. An exceptional advisor should have decades of experience in the markets. When making recommendations for your hard-earned money, advisors should also demonstrate that they entrust their own core holdings to the same custodians and investment managers they recommend to you. If not, I would question the relationship.

Beyond this, there are other important questions to ask your advisor:

  1. Are You a Fiduciary?

A fiduciary is held to the highest standard regarding their recommendations. These advisors offer only the best ideas that fit your specific situation. Other advisors are only held to the standard of making suitable recommendations.  Keep in mind that we are discussing your life’s work here. Working with a fiduciary-level advisor on your behalf is usually a wise move.

  1. Are You a Certified Financial Planner CFP™? This designation is not easy to obtain, requiring hundreds of hours of study, extensive examinations, and ongoing continuing education. Nevertheless, it should be considered the bare minimum for advisors.  We all want to work with professionals at the top of their game.  This designation shows commitment to the client and that they take their careers and your finances seriously.  In addition to their designations, advisors should spend significant time researching, attending conferences, and engaging with other successful advisors and analysts.   If your advisor has a single-digit handicap and entertains excessively, that should raise a flag.

How Many Clients Do You Work With? 

Another issue in my industry is the mindset of asset gathering and how rapidly you can expand your client base. Many studies suggest that each advisor can effectively handle up to 80 relationships. In my opinion, that number is closer to 40 if you want to devote ample time and effort to work on behalf of your client.  Calls to CPAs and attorneys to coordinate tax and estate planning require additional time and effort.  Having too many clients leads to a lack of outreach by advisors and less face time with clients to update financial plans and make suggestions that can lead to better outcomes. 

Benjamin Disraeli once said,” Diligence is the mother of good fortune.”  When conducting your advisor research or obtaining second opinions after subpar results, be sure to bring a list of questions to the table when interviewing a potential new advisor.  Having a financial checklist goes a long way toward making smart financial decisions for you and your family.