In our work with both financial advisors and high-net-worth clients, we see a troubling trend: Too many successful, wealthy individuals and families are getting poor financial advice.
They are simply not getting the guidance, services or products that are most appropriate to help them achieve their key financial goals.
There are a number of reasons for this. But one main culprit is that, overall, there are a relatively small number of financial advisors we would describe as extremely talented and deeply caring professionals.
So it’s a good time to ask yourself: How good is the financial advice I’m getting these days?
Four types of advisors
We have been able to segment professionals—financial and legal—into four types, based on their intent and expertise (see Exhibit 1). Of course you want to work with experts who are committed to your well-being and agenda, and who are extremely technically capable. These are advisors we call consummate professionals.
The other three types are best to avoid—which isn’t always easy, given how many of them exist!
Pretenders truly want to do a very good job for their clients. They have the best of intentions. The problem: They lack the knowledge and capabilities to do so! Pretenders want to do well, but they “don’t know what they don’t know.”
Regrettably, Pretenders comprise the vast majority of professionals, in our experience. Most financial advisors simply are not familiar with many of the more advanced wealth-building and wealth-protecting solutions in existence. And those who are often struggle to implement them as well as possible. (Some Pretenders lack proficiency with even basic wealth-building and wealth-protecting solutions, and should be avoided.)
Important: Advisors who are Pretenders are not bad people. To the contrary, they tend to be intelligent, hardworking and well-meaning. They want to do what is best for their clients, but from an objective vantage point, they are just not capable. Their earnest, hard work does not change the fact that a great many of them probably are not able to provide you with the high-level, sophisticated tools, strategies and products that are almost always necessary to become meaningfully wealthier, and they probably aren’t adept at the strategies that are so critical to protecting your wealth.
Predators are criminals. Their objective is to separate you from your wealth. Using cunning, guile and duplicity, they seek to capitalize on the greed, naiveté or goodwill of their intended victims. Predators may or may not be technically sophisticated. However, they’re superbly capable of being manipulative and building rapport and trust.
Unfortunately, it can be fairly difficult to spot Predators. They tend to be narcissistic and very clever grifters. Predators can be superficially extremely charming and are usually quite adept at faking caring and concern—so it appears they are very focused on helping you. Unknowingly engaging a cunning Predator as an advisor potentially can be disastrous to your wealth (and likely your mental health).
Exploiters are often quite technically adept—highly skilled in advanced financial strategies. The problem is that the financial and legal strategies they often turn to are technically legal but highly questionable. Thus, there is often a good possibility that the strategies they advocate will blow up on you—often years after you’ve taken their advice. Put simply, Exploiters are not looking out for your best interests.
Exploiters can also be hard to spot, because of their technical skills and because the complex strategies they often promote make it hard for other professionals to effectively question what they are proposing. When Exploiters are also adept at building trusting relationships, they can be extremely persuasive—and therefore potentially very dangerous to your financial security.
The key differences among the four types of professionals are summarized in Exhibit 2.
Without question, you want to work with a consummate professional. The issue then becomes how to find one.
Finding a consummate professional to work with
We have concluded that only a relatively small percentage of advisors today are capable of making a meaningful, positive and pronounced difference in the lives of successful individuals and families with significant wealth.
There are a few ways to help give you greater confidence that you are working with a consummate professional.
The way that most of the affluent and the accomplished find exceptional financial advisors is via introductions from professionals they work with. Example: If you need an exceptional money manager, your accountant may know trusted experts he or she can introduce you to. Or if you have an estate tax issue for which life insurance is the best solution, your trusts and estates lawyer likely knows leading life insurance agents.
Going to professionals who have proven themselves to you can be a very powerful way to find other consummate professionals. When accountants or lawyers refer you to a financial advisor, they are putting their reputation and professional judgment on the line. This is not something they are likely to do unless they feel the financial advisor is a consummate professional.
Another consideration is whether the financial advisor is a thought leader. That is, he or she is recognized as a leading authority by other professionals, the wealthy and successful, and even competitors. By identifying true thought leaders, you increase the likelihood of working with some of the most erudite professionals in their fields.
If you’re not sure
We find that many successful, wealthy individuals and families recognize when something feels wrong—or at least, not quite right—about their professional advisors. For example, entrepreneurs with years of experience building and growing a financially strong company are often able to spot when they may not be getting enough financial value—or when they may be dealing with someone whose advice could get them into trouble down the road.
One of the best ways to deal with a situation where you’re just “not completely sure” or you “feel a little uncertain” is to conduct a stress test. This is a process of critically evaluating key aspects of your current financial situation and how they are being managed. Or it may involve carefully assessing a particular strategy or product you are considering and “putting it through its paces” before deciding whether to move ahead.
Stress testing gives you the opportunity to correct mistakes or use solutions and products that can do a lot more to help you accomplish your goals. Simply put, stress testing often makes a lot of sense if you want to avoid financial advisors who are Pretenders, Predators or Exploiters.