Getting a financial advisor is a bit like going to a new doctor. There are things they want to know so they can give you the best treatment.
Your physician has one clear purpose: fixing what ails you and helping you avoid unhealthy behavior. Financial advisors want to improve your financial health because the more wealth you build over time, the more they are likely to earn. That means your interests are aligned, in theory. In practice, it may not be so clear-cut.
"Financial advising is more of an art than a science. You can't just push a button and create a financial plan," says Jon Smith, chief executive officer of DT Investment Partners, whose practice includes independent reviews of financial advisors.
The fact that it's not, as Smith says, pure science, makes finding financial advice complicated. It means you, as the client, need to articulate your own vision of financial success and work with an advisor to make it come to life.
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That also means forging a trusting relationship, but one with clear guidelines and boundaries that you and your advisor understand and respect. Here are some guidelines about things you should not expect, or may not even want, to hear from a financial advisor (and some things they should never tell you).
Don't ask about the future. Everyone wants to know what will happen next. Your financial advisor doesn't really know it better than anyone else. There is "proven low predictive power" for success in picking stocks or mutual funds, says Fran Kinniry, senior investment strategist for Vanguard Investment Strategy Group. Clients shouldn't expect advisors to know what will happen next in the markets or the economy, and financial advisers shouldn't pretend to know.
"We are all tempted by this. Financial advisors do not have a crystal ball," Kinniry says. "The future, by definition, is uncertain, and advisors should be staying away from predicting things like interest rates, the stock market and what the Fed will do, and things beyond their control."
It's OK to ask how your investing behavior and savings plans suit your goals. What financial advisors can do is guide people to save and accumulate wealth, and help them stick to a working plan, much like a physical trainer coaching people on staying fit. On the savings side, advisors can help people design budgets to live within their means. On the investing side, they can help people stay the course through difficult markets to meet long-term goals.
But exactly what does that mean? It might sound counterintuitive, but a key role financial advisors must play in helping people accumulate wealth is to coax them to take on risk. "They should be trying to maximize how much risk you are willing to take," Kinniry says. "The most you can possibly stomach, but not too much risk." That does not mean to look for speculative investments, he says. It means an advisor can help you invest in a disciplined way for the long term and stay "committed to your investments through difficult market times."
Your financial advisor should not propose investments based on unprovable assumptions about economic "certainties." Some financial advisors take the easy course of playing on client fears surrounding hot-button issues facing the market, or the opposite: get-rich-quick schemes in real estate or things "no one else has heard about yet." Fear of runaway inflation is one pitch that works well at triggering a wave of investment alternatives like commodities, especially gold, which is favored by older investors who experienced hyperinflation in the 1970s and 1980s. Many of those alternative investments have performed badly over the past two years. Gold has declined from the $1,900-an-ounce level to a low of $1,200 since 2011, offering none of the protection some said it would provide when U.S. debt was downgraded or when the government shut down.
"Over the past decade, this enduring belief in inflation has been one of the biggest disconnects between what people think and what has happened," Kinniry says.