Do You Need to Like Your Financial Adviser?

Morningstar's Karen Wallace discusses the importance of geniality and competence for advisers with financial planning expert Michael Kitces

Karen Wallace 18 April, 2019 | 10:23AM

 

 

Karen Wallace: Hi, I'm Karen Wallace for Morningstar. How much does likeability matter when initially choosing an adviser, and what role does it play in maintaining an ongoing relationship with that adviser? Here to discuss this is financial planning expert Michael Kitces.

Michael, thank you for being here.

Michael Kitces: Thanks, Karen. Good to be here today.

Wallace: So, you've recently had a discussion with Carl Richards on your blog where you tackled this question of likeability. And it sort of goes beyond just politeness. It sort of goes into communication styles and authenticity. Can you discuss what role these play as an adviser?

Kitces: So, this is kind of an interesting challenge to me. I think from both the adviser end, what we try to do to be successful with our clients, and from the investor end, how do you find and pick your adviser. Because there's been this long-standing challenge out there. You look at some of the consumer surveys - nobody trusts their financial services institution, but everybody likes their individual adviser. Like, "I don't know about the firm, but my guy or my gal is a good person and I like them." I think, well, all right, that's great; I don't want to denigrate anyone. But how do you actually know they are any good and doing the right thing? "Well, like, well, they are really nice; I like them a lot." But how do you actually know if they are any good and they are doing the right thing?

You know, there's this challenge I think in the world of trying to find an adviser where it's an intangible service. Like, I don't know if they are really going to ... I don't know if the advice is good until five, 10, 20, 30 years from now when I look back and hopefully say, well, my adviser gave me good advice, that went really well, I'm so glad I did those things. It's really hard to evaluate. It's even really hard to evaluate shortly after the fact. You often don't know until way later whether this advice was actually good and helpful and fruitful.

And the challenge I think it creates is - and I have a lot of sympathy for this from the investor end - it gets really hard to pick an adviser. Just literally, what are you going to go on, how are you going to choose? And what is it often now coming back to: "Well, I feel like I get along with them. I like them; I like my adviser." And not that I'm negative on having a relationship with an adviser that you like, but I'm not sure it should necessarily be the best driver - this person can give me advice based on my accumulated life savings that I've worked 30 years for because he or she is a nice person.

And so, to me, like from the adviser end, I think this is still sort of a cross that we have to bear to some extent. I can't give someone a good advice if they don't like me, don't want to communicate with me. This is not going to work as a relationship. And so, there is at least some burden on us as advisers to try to be at least reasonably likeable and polite and have reasonable rapport in company even if - and sometimes especially when - we have to give hard advice and deliver hard medicine.

But I think from the investor end as you are thinking about this and working with advisers, I would caution people about framing it too much as, well, "I just want to make sure I like my adviser." Because frankly, if they are going to give you hard advice, I actually hope you don't like them sometimes because sometimes that's part of giving people hard advice they need to hear. And what I encourage instead is, just think about it from a communication style end.

You do need to be able to communicate with them well, certainly need to enjoy breaking bread with them and playing golf with them and doing social stuff with them. But you do need to communicate well with them. And people communicate in different ways. Some are very visual and do a great job drawing pictures and telling stories. If that's what works for you, that's great. Other people love to delve into the numbers. So, find yourself and adviser that loves delving into the numbers as much as you do. You have a right to demand and insist that. If you can't find an adviser that can communicate what you need to see and hear, find a different one who does.

But just would caution: sheer likeability alone ... unfortunately Bernie Madoff was a likable guy. In fact, part of the reason why con men are successful in what they do is because they are very likeable people who then don't always tell all the truths. And certainly not to imply that all likeable people are cons or all likeable advisers are cons, but you have to go a step deeper into--are they actually competent? They have some credentials, they know what they are talking about, and communication matters, but saying "Can I communicate with this person?" is different than trying to just find someone you like.

Wallace: So, ideally, you want somebody who can explain things that you don't understand to you clearly and someone you can trust to tell you when you are on the wrong track?

Kitces: Yeah. As I kind of view it, it sort of boils down to three pieces that are very related. One, is the communication there? Can they explain things to me the way I need to hear them and have them explained to me? And we all take in information differently. So, one adviser could be fantastic for one person, is a terrible fit for another, because the styles are just different.

I think the second driver is essentially what I would call competency. Do they actually have the expertise? Do they actually have the knowledge? I find sometimes we sort of forget, "Oh, they also have to actually know what they are talking about," not just communicate well but communicate things that are factual and knowledgeable and accurate. The unfortunate reality in the adviser industry is our minimum standards are very low. Doctors have to go to med school, and lawyers have to go to law school. Financial advisers don't have to go to financial adviser school. Our minimum regulatory requirements are fairly simple, minimum exam just to make sure we know the laws that apply to us. So, looking for things like CFP certification, other advanced designations, and the experience just to be competent matters. 

So, communication is the first, competency is the second. And then, the third I think it does still come down to trust. Not necessarily likeability per se. Although it's hard to trust people I completely dislike, but do you trust them? Meaning, if they are going to give you advice, do you trust the advice? Because if you are going to spend all of your time second-guessing and error-checking and back-checking your adviser, you are not getting very much leverage and time savings and efficiency out of this relationship with an adviser; find someone that you can trust enough that when they do give you the advice, you are comfortable and willing to take it. And if you just fundamentally don't trust them, that should be the biggest warning flag of all that you need an other adviser. Not that they have to be a bad person, but if you can't place that trust in them, find someone that you can.

Wallace: That's really a great advice. Thanks so much for being here to discuss it.

Kitces: My pleasure. Thank you, Karen.

Wallace: For Morningstar, I'm Karen Wallace. Thanks for watching.

 

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Karen Wallace  Karen Wallace is an editor with Morningstar.

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