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2 Truths and 7 Steps in Understanding the Financial Industry and Finding a Financial Professional

The world of financial advice and investment management is a wildly misunderstood industry. Many of us are under the assumption that their role is to help you make money and create wealth. Sorry to break it to you, but it’s just not the case. It took me over a decade of being undercover in the industry to even recognize what it’s really about, and another decade to figure out what to do about it. (Yes, I’m slow.) Maybe these cliff notes will come in handy for one or two of you.

In the early stages of my career in financial services, I was fortunate to move quickly through a large banking institution into their Private Bank where we specialized in working with the bank’s highest net worth clients. Sitting across from someone with ten, twenty, or over 100 million dollars, I was insatiably curious to understand how they got there. Saving a portion of my paycheck, contributing to my 401(k), even with the company match and exceptional investment returns, I couldn’t make the math work to my achieving anything close to their levels of financial success. So, to satisfy my curiosity, I began asking questions. It didn’t take long to realize that their path was vastly different from the one I was on.

Within a few months, it became obvious that with very few exceptions, all of our financially successful clients had accumulated their wealth in one of three ways.

1. They had built, owned, and monetized Businesses,

2. Many had found success through Real Estate, or

3. They had Inherited from previous generations.

Then I began to observe the work we were doing with clients. We were supposed to be the most qualified financial experts, working at the most qualified institution, with the most qualified clients. Yet we did essentially nothing to help business owners grow, monetize, or successfully exit their businesses. For real estate investors, we would occasionally lend them money if they didn’t really need it; but once they did, or they had accumulated too many properties, we quickly lost interest. And for those that had inherited their wealth, what I saw was money transferring to kids, kids blowing the money and ultimately hating each other. I couldn’t help but wonder what business we were actually in; it clearly wasn’t to help families continue to create wealth. My conclusion?

Financial and investment advisors aren’t in the business of helping families create or accumulate wealth at all; they simply move assets you’ve made out of accumulation vehicles and spread it around to protect long term purchasing power.

Lots of fancy math is used to show statistical evidence of risk reduction, and as long as your life and the rest of the world operates within the bell curve, there’s a statistically decent chance you’ll end up somewhere close to what was projected. Not many times have I seen that happen, but nonetheless, it’s possible.

My second awakening came when I began looking at what made clients actually implement our recommendations. We created impressive spreadsheets, graphs, statistics, and all sorts of complex math to show them how they could get better returns, take less risk, out-perform their friends, save on taxes, and who knows what else to improve their financial positions. However, it seemed that more often than not, the couples we met with wanted to go home and think about it; code for thanks, but no thanks. What was this all about?

A business coach at the time challenged me to try something new with my next client engagement. Meeting with a prospective family, I stood in front of a large flip chart with a Sharpie pen and asked them what was most important to them in life. They looked at me blankly, I smiled back. It was awkward for a few moments, they looked at each other, then began speaking. As they spoke, I wrote on the chart. They shared what was most important, we prioritized them from most to least important, and discussed why each of these were on the list. After about 30 minutes, we had a comprehensive list, all of seven items. As we reviewed each item, something became immediately clear. Not once did they mention the standard deviations, alpha, beta, outperforming a benchmark, rates on loans, or anything else I typically talked about all day. On their list, they had shared about their family, their faith, stability, giving, relationships, making a difference, ensuring their kids wouldn’t be entitled; and things vastly more important than money. It was at this moment that it became clear to me that money and financial resources were merely the tool, the engine, the fuel that could be designed to propel their life goals, dreams, visions, and ultimate purpose. My role changed that day.

Over the coming months, I had more meaningful conversations with individuals, couples, and families than in the entire previous decade. They were sharing things with me about their business challenges, issues with heirs taking over responsibility of family real estate holdings, not enjoying the philanthropic work they were doing, their dreams, fears, visions, and what kept them awake at night. These families were less concerned about the return on their investments, and far more concerned about the impact their success would have on their kids, their relationships, and their communities. There was an itch that no financial solution, advisor, or spreadsheet had solved. As families opened up, my ability to serve them grew. When the solutions designed were aligned with what was most important, they also began to take action on the recommendations. With the added opportunity to serve, I needed access to a team that could address their business needs, assist in aligning family interests, and breathe life and clarity into their dreams.

As I presented my findings and new engagement process to the leadership team at the bank, I quickly became aware of another disappointing reality of the financial industry. It was made very clear that the extra several hours I was spending with new clients getting to know them were not adding shareholder value. (At the time, every activity we did had to be accounted for as a metric of “shareholder value added – a topic for another article.”) I was instructed that if a product was not sold by our second meeting, my process was ineffective. Silly and naïve little me; I was under the impression we were in the business of designing financial solutions to improve peoples’ lives. It was at that moment that the financial industry became extremely simple, and clearly not about the families we were meeting with.

Financial institutions are product manufacturing companies.
Financial advisors are distribution channels of these products.

Nothing complex about it; couldn’t be more simplistic. And once we all realize this simple truth, getting financial advice becomes much easier. You simply need to understand the motivations of the salesperson across from you.

Now, are all advisors and firms built this way? Of course not. There are many that d0 approach their clients from a client-centric, solution-based perspective. However, in most cases, it seems it takes years for these advisors to get to this point in their careers. Nearly everyone that enters the financial industry begins their careers with an institution – a bank, insurance company, wire house, brokerage firm, investment company, etc. The inherent reality is that they are thereby trained by manufacturing companies to sell their products. There’s no real problem with this; that’s how the industry earns profit and continues to create and deliver products, many of which are great for investors. However, as a consumer, it’s imperative you understand that it’s not about you.

For me, I left the institutional world shortly after my awakening and assembled a team to be able to effectively engage families looking to continue creating wealth, live with greater impact, and maintain family continuity throughout the process and over multiple generations. It’s been a process to re-educate the world on this strange new perspective, but the results couldn’t be more rewarding for our team and the families we serve.

I expect this isn’t any break-through knowledge for many of you, but perhaps puts what you knew or suspected into words. So, what can you do about it? What do you need to know?

Here are a few tips I have shared with others that may come in handy:

7 Tips on Finding your Financial Professional

  1. Be clear on your purpose for hiring an advisor in the first place. What are you really looking for? What’s missing in your life that you need fulfilled? Do you simply have a rock in your shoe that needs to be removed, or are you looking for someone to assess how the rock got in there in the first place?

  2. Find someone that is intently curious about you, your family, your dreams, your fears, and understands how your financial resources play into this.

  3. Look for someone that asks the right questions. Coming up with intelligent sounding answers is easy. Coming up with the right answers is a direct result of asking the right questions. Most of the time, the right question is “why?” The clarity of the question determines the quality of the solution.

  4. Look for someone that can and has effectively partnered with other advisors in their own and other industries. Comprehensive solutions rarely come entirely from a single discipline. Your real estate solution will affect your tax and legal strategies. Your investments may need to be positioned to off-set the risk of your closely-held business with exposure to a specific sector.

  5. Seek a leading advisor that has a broad knowledge and mastery of multiple disciplines so they can identify the overall risks and opportunities. Supplement them with technicians and experts in individual fields. You shouldn’t be on your own to determine how it all fits together.

  6. Have absolute clarity on how everyone gets compensated. To the extent you can, ensure that solutions are completely objective and not influenced by the need to sell a product.

  7. If family is important to you, look for an advisor or team that asks about and understands the implications of your wealth on your kids and other family members. The natural outcome of wealth in families is conflict and destruction, but it doesn’t have to be that way.

There are, of course, plenty of other things to look for, but these seem to be ones that are less often discussed. The world of financial, estate, tax, real estate, investment, and insurance planning is not a simple one. We’re never really taught these things in school, and even if we were, most would rather have a root canal than sit in a class on the US tax code, calculating bond yields, or transferring risk through insurance. So, in all fairness, it’s a tough world to navigate, and has massive implications. Making intelligent financial decisions can have a significant impact on life, relationships, and overall well-being. Don’t take it too lightly, surround yourself with the right people with the right perspective. In doing so, you’ll find your way to financial confidence and overall peace of mind. The good news is that there are nerds like us that cherish relationships and love this stuff!



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