Financial Advice- What's Missing?


There are some very capable financial advisors in this world, and I am fortunate to have interacted with a few of them. I did, however, read this article with interest, about the people and issues that tend to get ignored by financial advisors. This is less of a criticism of the industry, and more so a flag that there are opportunities to potentially service clients better - which is good for everyone! Here are a few categories of people and issues that routinely get overlooked:

1. Goals that don’t have to do with investing or retirement are often glossed over. This makes sense, in that many advisors don’t have much to say about how best to save, pay down debt, optimize your 401k, plan for a baby or a house or college. Unfortunately, these are the things that people need advice on - and don’t know where to find it. Retirement and investment advice are super important, but they need to be considered in the context of all of these other objectives - if your retirement plan works but your other important life plans don’t, what does that actually mean? Life can’t be segmented - it has to be viewed holistically. And realistically for most people, the biggest issues revolve around making sure they have an adequate nest egg, and aren’t burdened by expensive debt. Get those things sorted and the rest is relatively easy to deal with.

2. Wives, especially those who stay home to raise the kids, are often overlooked. It is 2018 and it’s amazing that this still happens, but apparently this is not uncommon. Given that women, on average, live longer than men- and that many are the decision makers of the household finances- you would think the advisors would court them actively. It is not, therefore, surprising that when there is a death in the family (particularly in the case of a husband) there is a high degree of likelihood that the assets move away from the financial advisor. There is a way to avoid this- and that is to consider the entire family ecosystem when providing advice. Not just considering the couple (if there is a couple) but also remembering the planning that goes into their aging parents, their children, and any other people that are important to them. The more you know the family as an advisor, the more you can provide excellent advice- but also the more likely it is that they will stick with you!

3. Risks that are not immediately financial - but that could have big financial implications- are not always understood. If you do have most of your wealth in your company stock, the lack of diversification could completely wipe you out- as it did for so many who worked at places like Enron, Lehman Brothers and other “too big to fail” companies which are no longer with us. Wealth on paper is one thing, but if you can imagine a single event that could wipe out all of your wealth, it is time to diversify. Even if your company is doing great, consider selling some of their stock that you own and get into something else. Remember that Enron and Lehman Brothers were both doing great- until they weren’t.

4. The cost of the advice shouldn’t exceed the benefit. Seems obvious, but if you have a financial advisor, check the all-in cost of the service you are getting and see if the cost is justified. But don’t forget to also compare what you would have done in the absence of the advisor to see if that would have turned out even worse!

The conclusion from this shouldn’t be that financial advisors aren’t good- not at all. It is much more important that if you are an advisor, to be mindful of the whole person you are interacting with- their needs and aspirations beyond just investing and retirement - as well as the ecosystem of their extended family responsibilities and interests. If you are seeking financial advice, then that in itself is a great start - just be mindful of finding the right human- or holistic, digital, fiduciary, affordable platform- that fits your needs and can help you achieve what matters most to you!

Jay Gopalakrishnan