By Morey Stettner
To get you to follow their advice, your adviser says, “I do this for myself.” Is that good enough?
If doctors want you to follow a treatment plan, they may say, “I do the same thing” or “I give the same advice to my family.” Their goal is to get you to believe, “This expert follows their own advice, so it must be sound.”
Financial advisers sometimes use the same tactic. To persuade you to accept their advice, they cite themselves as role models. But what’s that worth? If your adviser says “I do this too,” does it settle the matter?
Short answer: No.
“There is no one-size-fits-all approach,” said Crystal McKeon, a Houston-based certified financial planner. “Just because I as the financial adviser did something doesn’t automatically mean it’s the right thing for the client.”
Many advisers are fiduciaries. That means they must act in the client’s best interest and offer advice that’s tailored to fit the client’s goals, values and situation.
An adviser who attests to following their own advice by buying a financial product (such as an annuity or whole-life insurance policy) does not necessarily prove that the advice serves the client’s best interest. In fact, it can be just the opposite.
“If you’re talking about commissioned products like insurance, ‘I bought this for myself’ might not paint the full picture,” said Michael Lofley, a certified financial planner in Stuart, Fla. “One of the biggest downsides to buying certain insurance products is hefty commissions. So is that attempt at persuasion coming from a place of concern, or selling something so the adviser can get paid?”
What if your adviser is referring to an investment strategy that doesn’t generate any fees or commissions? In that case, skepticism still has its place.
“A client’s goals and risk tolerance can be different from mine,” Lofley said. “I’m more aggressive than what I’d recommend to most people, as I’m more familiar with investing and more comfortable with risk. If things went bad, I’d have nobody to blame but myself.”
On the other hand, clients might gain reassurance if their adviser has vetted certain investments or financial services firms and put their own money into them. Some advisers freely share that they follow their own advice.
“This is a line I use all the time with my clients since they trust me to do what is in their best interest,” said Tom Balcom, a certified financial planner in Lighthouse Point, Fla. “They know I’ve performed due diligence on the various investments and if they warrant inclusion in my portfolio, they’ll allow them to be included in their portfolio as well.”
Some advisers distinguish between telling a client “I do this too” and sharing their experience as it relates to a specific financial decision. An instructive anecdote can illustrate why – or why not – a client might want to proceed a certain way.
“I’m very transparent with the actions I take personally regarding my financial life, but I rarely say ‘I did this, and you should too’,” said Eric Roberge, a Boston-based certified financial planner. “Instead, I might say, ‘Here’s what we did when faced with a similar situation…'”
For example, many of his clients are – like him – in their 40s with kids. Buying a home, for example, is a timely topic.
“Since interest rates are rather high these days when compared to a few years back, I share how we chose to sell our home with a 3% mortgage rate and buy a new, more expensive home with a higher rate,” he said. “And rather than choose a 30-year fixed mortgage, we chose a slightly lower rate on a 7-1 adjustable-rate mortgage even though that choice adds a bit more risk.”
Many advisers who provide investment management enlist an outside firm to manage client portfolios. Advisers might tell clients, “I have the same firm manage my own money – and my family’s money.”
“Sometimes it’s important to show that you are willing to ‘eat your own cooking’,” said George Gagliardi, a certified financial planner in Lexington, Mass. “But if clients have concerns about particular investments or insurance products, there are better ways to address their concerns than to say, ‘I use them as well.'”
More: Here’s how to make your investment adviser prove their stock-picking skill
Plus: Get familiar with the market’s history. It’ll help you see what’s coming for stocks.
-Morey Stettner
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12-24-24 0428ET
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