I have had the pleasure of working with many colorful people and families. It would be impossible for me to ever give back as much as I have learned from the good folks I work with. Until very recently, the markets have been awful, but that shouldn’t shock anyone who is reading this. As the markets have painfully fallen over the years, I have been contemplating a very important question: “What is the real value of advice?” I have been asked this very question by clients, prospective clients, and even peers. As I pondered, I felt I had to break the question down and even more questions arose – “How do we define advice?”, “What is the purpose of it?”, “Should there be boundaries on the advice asked for or given?” The overriding theme I think is that the market has changed and will continue to do so. Things are growing more and more commoditized. Investors can now enjoy immediate gratification, and access to everything nearly everywhere via their smartphone and zero-commission trades that most brokerage houses offer. So that leaves us to ponder the question, “What is the real value of advice?”

WHAT IS 'ADVICE' IN THE FINANCIAL INDUSTRY?

Let’s start with the state of the industry and what advice is or seems to be. In the broadest sense, anyone who has passed Series 65, 66, or equivalent is considered an advisor. According to the rules, these are folks who are compensated by fees for the sole purpose of giving advice. In this context, the word fiduciary comes up all the time. This is a great word. It implies a lot and depending on where you look, can have very long or very short definitions. To me, a fiduciary is someone who always acts in the stewardship of their clients. A person who can be trusted and always puts the financial interests of their client ahead of the compensation earned. The industry is interesting though. I started out working with clients in a very large firm. I found it odd that even though my role was supposed to be about helping clients, I was asked to refrain from using phrases like, “I would advise” or “I recommend.” That firm preferred me to say things like, “Here are a few suggestions” or “Maybe you should consider.” The rationale here is that if we don’t “recommend” it, we don’t have liability for it. This kind of guidance is common throughout the industry now. There are also scores of pundits who have TV shows, newsletters, and podcasts, who seem to give advice. If your portfolio doubles based on the suggestions of these folks, you owe them nothing; If your portfolio is cut in half, they owe you nothing. My point here is that investors need to define what it is they are actually looking for. It is very painful for everyone when the scope of the engagement is poorly defined. One last note on this type of advice, it is generally limited to just asset allocation. Usually no tax, legal, charitable, family, or legacy advice is available. Advisors should be taking responsibility versus trying to avoid it with posturing.

WHAT IS considered 'real' advice in the financial industry?

Now that we have covered the state of the industry, let us talk about what we consider ‘real advice’. First and foremost, advice should be specific and based solely on your facts and circumstances. Platitudes and generalities aren’t the answers. Thinking about the medical community, they give the oath to do no harm. So Medical practitioners of all sorts must understand the patient. As an example, my wife is deathly allergic to a highly common antibiotic. What might be good for most might be a widow maker for us, so a one-size-fits-most solution does not work here. Does this require more work for both the investors and the advisors? Absolutely it does! A deep understanding of the facts and circumstances surrounding the situation must be attained. A level of brutal honesty is paramount to success. There must be a commitment from the advice giver to be a lifelong student of the craft. There is a reason that marks like, Certified Financial Planner (CFP®), Chartered Financial Analyst (CFA®), Accredited Estate Planner (AEP®), Certified Public Accountant (CPA®), Chartered Retirement Planning Counselor (CRPC®), Chartered Life Underwriter (CLU®) and, Certified Investment Management Analyst (CIMA) have continuing education requirements. I am surely not saying that these marks alone make an advisor great or terrible. I am saying that they all require an extreme commitment to excellence and sacrifice to attain. From a client’s perspective, I would consider the story as to why your advisors chose their credentials and how they see them as a benefit to your family. Your advisor should be ready to get into the weeds with you on the details of any proposals given. Your family may not require that level of detail, but your advisor should be able to demonstrate the ability to go there when asked. Commitment to excellence and razor-sharp acumen should be table stakes for any advisor-client relationship.

ADVICE for family wealth management

The next thing I think is critically important is the ability to give opinions and direction in more than one area. It is our opinion that most families of means have four key areas of need: investing, legal, tax, and charitable. Most of us specialize in one area, but the best of us has enough training in the others to answer questions and involve other professionals where needed. The family stocks and bonds must be set into the context of your life. As an example, in other Wisdom in Wealth posts, we have discussed incapacity, death, real estate, and family issues. One dilemma I have seen over and over is the gap between professionals. Families often have concerns that may be in between the attorney and the accountant and families need a place to start and gather context. At CWA we strive to do just that. For example, before involving an estate planning counsel, CWA will normally do a financial plan and prep for what we believe the discussion should sound like. This helps the attorneys get to the point, and helps the clients feel more in tune with the language of that industry. This exercise saves money, fosters communication, and helps with understanding on all sides of the table. The point is that your family should be surrounded by professionals who know their role but help with items that may not be from their domain of specialty. Your team of professionals should be able to share the workload and refer you to the right place when needed.

ADVICE for families with wealth 

The last and arguably most important to me personally is an emotional and financial family confidant. Life is a tough place. There are a million perspectives on everything. Whatever you are thinking about, half of the internet likes it, and half hates it. I believe that the family advisor should be able to sit down, listen to your thoughts, and ask probing and discerning questions to help you arrive at your best thinking. Advisors should be able to help host family meetings and foster communication among members. There is certainly a place for family governance specialists or family dynamics counselors for more colorful families. At the core, we all have that echo chamber in our hearts and heads that sometimes requires another person to help the right ideas to echo loudest. Something about human nature seems to make us all our own worst enemies. You and your advisor should have a warm open dialogue. You should feel comfortable discussing delicate and complex family matters. There should be an unshakable feeling of trust and discretion in that relationship. In the best of times, this type of advisor can coordinate with your other advisors on your behalf and organize the team so that goals and concerns are more easily addressed.

What if you’ve read this and do not feel that your advisor lives up to the ideals listed here? I think that discussion is the right answer. That discussion should be amongst the family, and with advisors. The family should be able to express their goals, needs, and expectations. The advisor should be honest about their ability to serve inside that scope. People are creatures of habit, and most folks have a favorite coffee or sweet that becomes a routine; So, if over time adjustments need to be made to break the routine, I think that both the family and advisors should have the right to ask about these missing elements. Just because a thing hasn’t been historically done doesn’t mean that it cannot be. Stretch your team to its limits, ask the tough questions, and answer the tough questions. You only get one life and one chance to live it. If you push your team and find them lackluster, replace them, but give them the chance to rise to your expectations.

In the end, I feel the advice is one part stewardship and one part partnership. I hope that my clients feel heard, consulted, warm, and invited. This piece was not designed to criticize the business practices of others, but to simply shine a light on what a good advising relationship could be like if all parties are present and care about one another. As we close this piece and the year, we wish you and yours a safe happy, warm, and bright holiday season.