Circle of Trust
You guys remember the movie, Meet The Parents? It’s one of my favorites and is still funny every time I see it. I was thinking about the scene when Greg (played by Ben Stiller) meets his future father-in-law Jack (played by Robert De Niro) for the first time. Greg doesn’t know it yet, but Jack has some real trust issues. Jack is introducing his new business idea to Greg, a nanny camera that can be hidden in various objects around the house. This invention would allow parents to be able to spy check on their nanny and children.
Jack: “Let me ask you a question, Greg. Let’s just say you have kids and you want to get out of the house, spend a night on the town, you know, so you hire a babysitter, someone you think you can trust. References, work experience, it all checks out fine. But then how do you really know for certain that your loved ones are safe with a stranger? I mean, can you ever really trust another human being, Greg?”
Greg: “Sure, I think so.”
Jack: “No, the answer is you cannot.”
Jack and Greg spend the rest of the movie trying to figure out their trust relationship, which Jack identifies as “the circle of trust.”
This scene makes me think about a recurring conversation I have been having with multiple new clients. They tell me they had known it was time to hire a financial advisor, but they weren’t sure where to look. So by default they ended up with someone who cold called them from their bank and offered their services. I mean, banks are trustworthy, right? However, the recurring theme is that they found this new advisor to be better at sales than advising. And there was a real lack of transparency when it came to visibility in how their investments were being chosen.
They really wanted to find someone that they could trust.
When I started this business I thought that new clients would hire me because of my credentials, my years of experience, or maybe even because I have a little grey hair. But what I’ve found is that first and foremost, people want to find someone who they trust. (And also who knows what they’re doing!) If you don’t have trust, the other things don’t matter as much.
I tell my kids all the time that trust is gained in years and lost in seconds. So how do you really grow to trust your financial advisor if you do not already have a long relationship together?
Let me recommend a strategy: Trust, but verify.
Ronald Reagan made that phrase popular when he was explaining his approach to dealing with Russia and their nuclear weapons. And I think it is fitting when picking a financial advisor as well.
Trust, But Verify Strategy
Here are two specific ways you can do this.
- Ask your financial advisor if they will state in writing that they are your fiduciary. Fiduciary is just a fancy way of saying that the advisor will always put your interest ahead of his or her own in giving you advice. Now I know what you’re asking yourself. “Won’t every advisor just say they are a fiduciary even if they are not?” No! Many advisors’ companies will not allow them to say they are a fiduciary because they do not always follow that standard of care. You have to ask, and get the answer in writing.
- Ask your financial advisor what their conflicts of interest are. Every advisor has them. Some have a lot of conflicts, and some have structured their business to have as few as possible. A common example is if he gets you to use Investment A instead of Investment B, he will earn twice as much commission. Or if she sells X amount of this insurance product this month, she will win a trip to the Bahamas. You want to know what your advisor’s conflicts are, and you want them to be open and forthcoming in discussing those conflicts with you as they come up. And then choose an advisor with minimal conflicts of interest.
When you are working with an advisor don’t be afraid to ask the hard questions. If they recommend something you don’t understand, make them explain it to you. And ask them if they get paid anything from another source if you follow that recommendation. Make sure you receive account statements directly from the custodian holding your accounts and not just performance reports generated by your advisor. Trust, but verify.
I serve clients using a fee-only model because I believe this is the best way to minimize conflicts. I act as a fiduciary for my clients, advocating for their best interest and advising them the same way I would advise my own family.
If you’re looking to build a relationship with an advisor, reach out to me and ask me the hard questions. I’d love to help! Or as Jack might say, let me earn my way into your Circle of Trust. And if you are already working with an advisor but have some real questions after reading these recommendations, give me a call and I’d be happy to review their work and give you a free second opinion.
