The greatest disservice your financial advisor can offer


financial advisorIn Business Marketing 101, one of the first things they teach is the importance of having an “elevator speech” ready to deliver whenever somebody asks you what you do. Mine has typically been short and sweet: “I save investors from themselves.” This usually generates the next, hoped-for question: “What do you mean?” which is another way of saying, “Tell me more.”

In 2013, I was happy to see that I must be onto something, when I noticed that “my” elevator speech was the title for a Wall Street Journal article by respected columnist Jason Zweig. In his piece, “The Intelligent Investor: Saving Investors From Themselves,” he echoed my sentiments when he said, “While people need good advice, what they want is advice that sounds good.”

Zweig continued, “Everyone wants to chase the returns of whatever has been hottest and to shun whatever has gone cold. Most financial journalism, like most of Wall Street itself, is dedicated to a basic principle of marketing: When the ducks quack, feed ’em.”

The same malaise seems to apply among many of the financial representatives I encounter here in Canada. Just the other day, I ran into a financial colleague I’ve known for more than two decades. After exchanging pleasantries and reminiscing briefly about the 1990s financial climate in Toronto, I was bemused by how quickly he lapsed into prying me for my thoughts on the latest market trends and what stocks I was trading these days.

As I reflected on in a previous blog, “Still Balanced After All These Years,” the more lessons the market continues to deliver about the imprudence of chasing hot fads or fleeing cold conditions, the more investors and the status-quo brokerage community seem to react to the same old patterns in the same old (and ill-advised) ways.

Time and again, the markets have demonstrated that the wisest path to your personal long-term goals is to capture available market returns with a low-cost, globally diversified, stay-the-course strategy. Instead, most investors continue to:

  • Make financial decisions based on emotions instead of rational evidence.
  • Jump on bandwagons that may or may not make sense for their circumstances.
  • Grow overly despondent during bear markets and abandon their carefully crafted plans.
  • Lend too much weight to “advice” from well-meaning friends, family or colleagues.
  • Grow bored with their stay-put strategy and forget the sage words of Warren Buffett, who warns investors that, “excitement and expenses are their enemies.”

This brings us to the title of today’s post, and how one of the greatest services I feel I have to offer my clients might be misconstrued as a disservice by those who are seeking a quick fix to feed their bad investment habits.

As an investor, what are you really seeking from your financial advisor?  Do you want a Nodding Head who will simply execute your ideas? Or do you want someone who will aggressively talk you off the ledge whenever you’re about to engage in any number of ill-advised actions or reactions to market events that are beyond your control?

By letting investors know whenever their short-term rush is expected to have painful long-term consequences, I seek to save investors from themselves. To me, that’s the greatest “disservice” I have to offer.