There are many “10 Questions to Ask Your Financial Advisor” lists out there on the Internet. Although some of these questions may help some people discern which professional to sign up with, we prefer our ten questions as they cut to the heart of the matter. They have an obvious correct answer (“Yes”), an obvious incorrect answer (“No”), and any professional who tries to veil their answer behind marketing nuances without giving a clear yes or no can be counted as incorrect. Our ten questions should not be hard for an advisor to answer.
That being said, I enjoy answering every set of ten questions I find. I recently found a Christian version of 10 Questions to Ask Your Financial Advisor when I was reviewing (and recommending that you avoid) their misleading directory.
Here are their ten questions:
- What are your qualifications and background in financial planning?
- What services do you provide?
- How does your faith affect your investment philosophy/strategy and recommendations for clients?
- How are you paid?
- How much do you typically charge?
- What products do/don’t you put clients into?
- What is your average portfolio size and life stage?
- What resources do you have to address issues outside your area of expertise?
- How do you communicate with clients? How often?
- Will I work with anyone else in your office?
For each question that we have already answered elsewhere, I have included a link to our previously written article. The remaining five questions I am answering in this series.
The first one is:
How does your faith affect your investment philosophy/strategy and recommendations for clients?
There are several ways that I see my faith influence my work.
Emphasis on Helping DIY Investors
Those with the Utopian Vision believe humans have endless potential. They believe that the possibility to be good exists in everyone; society just needs to remove certain obstacles. Once those barriers are lifted, Utopians expect to see societal problems largely resolved.
Those with the Tragic Vision believe humans have inherent shortcomings. No person is free from human failings. All of us are not as capable as we would like to be. These failings may be described as the seven deadly sins, an inherent selfishness, an inability to be perfect, or unequal faculties, abilities, or talents. In the Tragic Vision, problems stem from these limitations inherent in human nature.
The perceived extent and distribution of these shortcomings vary between people who support the Tragic Vision, but the most common belief is that, no matter how much effort we expend, we humans cannot achieve anything close to perfection.
To achieve great success, people must make better decisions, which is the great challenge of the Tragic Vision’s reform. It is extremely difficult and may not even be possible for everyone. Perhaps the best we can hope for is incremental changes in each individual with the aid of mentors or with the painful but inspiring motivation of hitting bottom.
I believe that reality supports the Tragic Vision. This belief is one of the supporting tenets of my faith. I believe that we are flawed. We “have broken choosers,” as my father put it in Sunday school. We strive to choose what is right, but our “chooser” is broken and we find ourselves doing what is wrong in spite of our intentions.
Although we will always fall short of the perfection we strive to achieve, we can improve our chooser incrementally through things like diligence, discipline, and education. This belief motivates me to write and to educate people about finances.
We have no secret ingredient at Marotta Wealth Management. Instead, we openly and publicly publish our strategies as articles on our website. We strive to provide the necessary resources for anyone to prepare their own investment plan and meet their financial objectives.
We challenge ourselves not just to provide advice but to educate and, bit by bit, raise our readers up to the level of equals in wisdom. This incremental aid to others is one way we improve the world.
Emphasis on Fiduciary Standard
My Tragic Vision of the world also affects the way I see my own industry. The investment world is composed of mostly fee-and-commission-based advisors. We often call them “The Dark Side” of financial planning. There exist good professionals on the dark side, but the incentives to be bad are strong.
Commission-based brokers want to be seen “doing something,” and they are paid more if the products that they recommend are more costly. Thus, the temptation and confirmation bias errs on the side of wasting your money. This could mean unnecessary cost, loss of your financial freedom, or even bankruptcy.
Most financial regulatory agencies strive to create a set of rules that investment advisors must follow in order to be good fiduciaries. There is a whole graveyard of failed regulatory attempts and yet there is still a dark side of financial planning. Some of the failure to regulate comes from regulatory capture, but much of it comes from the fact that investment advisors have broken choosers and no a set of rules detailing what can and cannot be done will protect consumers from their advisor’s flaws.
The fiduciary standard is like the golden rule: do unto others as you would have others do unto you. We cannot define a set of golden-rule-approved behavior and a set of golden-rule-rejected behavior. Each situation calls for a slightly different response and the high moral principle of the standard must guide you.
“Don’t push your sister,” may work in 99% of cases as an interpretation of the golden rule, but when the TV is falling on your sister, the golden rule would have you push her out of the way. In this manner, you can see how a principle-based standard creates better behavior than a rules-based set of regulations.
For this reason, a good fiduciary is not always nice. In fact, the fiduciary standard often requires literally being disagreeable. The best advisors are people who are usually right and hold strong opinions. A good fiduciary does what is right even if it is not what others want.
This is why we have the fiduciary standard baked into our Tenets of Customer Service. Accuracy and clarity come before empathy, because our first priority is to clearly tell you what is right. Empathy comes next so that our strong opinions are communicated with tact and heart.
However, the fiduciary standard of clearly telling you the truth must come first at the core of our standard because it is in your best interest.
Emphasis on Methodology
The beliefs of your investment manager influence their methodology. An investment manager who is “at times a soft socialist” will be more likely to engage in active management, market timing, and gambling on individual stocks because they believe a central planner like themselves can know better than the free markets. They will also, on average, charge more because they believe that their genius is worth it. However all of these decisions will, on average, impoverish you and your financial goals.
In contrast, an investment manager like us who leans libertarian will be more likely to believe in the power of free markets, long-term investing, and diversification.
Given a dozen stellar financial planning firms, only one will have the best returns over any five or ten year period. Yet given the right methodology, every firm could help clients ensure that they have the best chance to meet their goals and secure a safe and prosperous retirement.
The beliefs of your investment manager will help decide their methodology.
We view thrift as a virtue and focus on low-cost investing. We see the goal of investing as supporting your financial needs, which is why we think your portfolio needs diversification. We believe that there is no one-size-fits-all set of rules for how to be good. The circumstances decides how principles like the golden rule should apply. As such, we heavily value freedom and, for over a decade, we’ve been advocating freedom investing as a global strategy.
We believe in the importance of methodology itself and respect the fallibility of human limits. As a result, we take the time to do the research, run the analysis, and strive to find the best strategy we can for any aspect of wealth management.
Emphasis on Diversification
Our firm is probably one of the only firms with a corporate bible verse in Ecclesiastes 11:2: “Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth.”
Diversification is a staple of financial advice. Don’t put all your eggs in one basket because if you drop the basket you won’t have any eggs. In the same way, don’t put all your assets in one company stock because if that company doesn’t perform well you might have jeopardized your financial needs.
Diversification is responsible. It is the difference between being willing to break every bone in your body as an Olympic skier and safely skiing with friends. As David Marotta writes:
Even if you have the risk profile of an Olympic skier that doesn’t mean you need to have a do or die investment portfolio. When it comes to money, every investor should avoid the three cardinal investment sins: fear, greed, and pride. Fear keeps you off the slopes, greed makes you ski faster than is safe, and pride makes you risk everything in order to get a place on the podium.
In month to month snapshots, diversification dampens both the highs and the lows. You always have an investment to complain about and an investment that is your darling. But the goal isn’t to invest only in what goes up. The goal is to support your financial needs, which is why your portfolio needs diversification.
Emphasis on Life Planning
Individual callings before God are as unique as the people themselves. In our human experience, it is easy to see how the diversity of gifts, dreams, passions and aspirations are a powerful force and the source of much human achievement. Almost regardless of which religious tradition we are talking about, spiritual values suggest that nothing is more important than determining your unique area of genius. The right to pursue your calling is a self-evident, Creator-endowed right, even a responsibility. No aspect of human government should impede this pursuit. It is sacrosanct and needs to be protected.
We like to challenge our clients to answer the question: “What is the money for?” Money is a placeholder for the reward of labor, so the question carries with it a lot of life meaning. It matters as much why you answer the way you do as how you answer.
Every spiritual tradition promotes certain actions and ideals as beautiful, virtuous, and true and discourages others as ugly, sinful, and false. Having a spiritual view of wealth management, whether based on the Judeo-Christian, Buddhist, Baha’i, or any other faith, helps us purposefully apply our values and use money to meet our goals.
Authentic spirituality can infuse all of life’s endeavors with a greater meaning and purpose.
For example, there is a marked attitude shift between doing your own dishes as a single person and doing your own dishes for your family as an act of love. Your feelings before, during, and after doing the dishes are all different. There are things that money could never pay us to do, but love will motivate us to do.
In this larger context, even the small things have large meaning.
This mindset and belief create an emphasis on life planning in our firm. What is the money for? Despite the fact that you are certainly going to die, your life has purpose .
This belief in the inherent value and purpose of mankind’s life creates an emphasis on life planning for us. Yes, we can invest your capital with the intention of generating high returns, but in the end, money is paper; it has no natural worth. Your money has value because you have value that your money helps you achieve. What is the money for?
Emphasis on Financial Freedom over Retirement
Retirement sometimes means a complete withdrawal from life and workforce. Even the word “retire” has the connotations of quietly shuffling off to bed. However, I believe we are meant for meaningful and significant work, even in so-called retirement.
Work is the drive to accomplish something worthwhile, the yearning to be part of something bigger than ourselves, the quest to find meaning in our lives.
That’s why we like to replace the idea of retirement with the concept of financial independence. If you are financially independent, you are free to pursue all of your life goals, even those goals for which you are not paid a salary. A retirement without meaningful activities is liable to be cut short by health or other problems. We were intended for significance not mere leisure.
We each long to participate in something significant and realize our greater passions. Those goals require foresight, planning, and forgoing our momentary desires. The choices we make each day determine the ones we will have the opportunity to make in the future. Your thrift today builds your dreams of the future.
This is why our mission statement is “Our goal is to help our clients meet theirs” rather than something lesser like “We help you have enough money to live.” We want our clients to thrive in achieving their goals not just survive on a large retirement income.
These are just a handful of the ways that my faith affects my investment philosophy and recommendations. However, I do not believe that you need to share any aspect of my faith to benefit from our services.
While there are some beliefs that do influence a financial advisor’s opinions in significant ways, those opinions will manifest themselves in other more telling ways.
Part of life planning is aligning your money with your values. These are by definition your values though, not your advisor’s values. You should find an advisor you can trust, but your financial advisor need not share your values in order to be helpful to you.
A good financial professional should fully accept and take seriously his or her fiduciary duty. He or she should be someone who puts your interests first, who takes the time to understand your values and helps apply them to your situation, and who is competent enough to disagree with you when it is in your best interest to be corrected.
You don’t need someone who is a clone of yourself as your financial advisor. In fact, if there are too many similarities, your advisor may be unhelpful. A parrot, although agreeable, is a bad advisor. Instead, having someone a little different from you can be a huge blessing. Sometimes the best advice is when a competent advisor tells you that you are wrong, when they protect you from “The Big Mistake,” and when they stand as strong opposition in the face of pressure.
More than any other criteria, we recommend you seek a competent fee-only fiduciary who offers comprehensive financial planning. If you are looking for a way to limit your search to just those types of professionals, try finding a member of the National Associations of Personal Financial Advisors in your area.
Photo by Marten Bjork on Unsplash