Thursday, November 4, 2010

Disagreeable Financial Advisors

Most times in life we seek to spend time with people we like and who agree with our views on major topics. However, this may not be a good strategy when it comes to financial advisors as Jason Zweig explains.

Here is a rough transcript of a common exchange I have with people about their financial advisors:

Me: “Are you happy with your financial advisor?”

Reply: “Yes, he’s a really great guy.”

Me: “Is he handling your money well?”

Reply: “Uh, I don’t really understand that stuff very well. But he’s really a good guy.”

A sign of a good salesperson is being likeable. Things aren’t much different with financial advisors. The advisors who are hungry for business do well by agreeing with whatever the client says, even if the client thinks he want to manage his money in a way that isn’t likely to perform well.

This brings me to a potential strategy for choosing a financial advisor. Seek out an advisor who disagrees with you. The theory is that such an advisor is more likely to be looking out for your interests even if it might cost him some business.

I don’t know if finding a disagreeable financial advisor is the best strategy, but it certainly makes sense to be wary of those who agree with you too much.


  1. @Financial Cents: I used two different financial advisors when I first decided that there must be more to investing than GICs. The first one was a great guy. As I started to learn more I became less happy with him. The next one I tried was a nice woman who used to work at a bank branch I used. She mostly tried to talk me into borrowing more to invest. Fortunately, I didn't go for it -- this was before the tech bubble burst. Since then I have been learning enough to go the DIY route.

  2. Excellent point. I guess this goes for any profession. I am an IT and many times less-than-knowledgeable clients try to impose their solutions. I would rather lose their business than do something that my professional conscience doesn't agree with. And it pays - after trying the alternative of "the client is always right", the smart one come back to the one who told them as it is.
    I used a FA - yet he was indeed just another pleasant sales person. They should be forced by law to disclose the performance of the portfolios they manage. Normally they just mumble things like "that is a good mutual fund, it made me good money" (maybe because they didn't buy the FA series of the fund :D).

  3. @Andi: An important question for you is whether enough clients are smart enough to stick with you even though you may tell them they are wrong.

  4. You are right, yet... I guess enough clients buy Ferrari to keep it in business. The purchasing process is horribly complicated, the price is outrageous, the reliability is good yet any single repair will cost you as much as Toyota Corolla. Sorry for my lack of modesty (it's just a joke) yet I believe that people are smart - sometimes they let themselves go yet they always wake up.