Financial Planners and Advisors: the Good, the Bad, the Ugly

What is the difference between a good and a bad FA/FP (financial advisor/financial planner)? Lets start with what they are NOT… they are not financial analysts or economists, they are not traders or market experts. This means they do not fully grasp the complex dynamics of capital flows between markets and countries, yield spreads, risk on/off mode, and so much more. That’s fine. BUT…

A good financial advisor is not clueless or almost clueless about the market! I have interacted with many FAs, wealth managers, and other such professionals and I have found that a significant fraction are scary clueless about what is happening, unable to put the big picture in normal words! They rehash news sound bites that are obviously not fully integrated into a logical whole in their market perspective. They repeat buzz words heard or read in reports from their in-house economists and financial experts, but they are not totally sure what they are talking about. They have financial products to sell and that determines their bonuses and advancement. Period.

A good financial advisor has MANY skills:

  1. A good and true listener to the client needs, objectives, dreams, and fears.
  2. A people person who has emotional maturity and wisdom enough to be somewhat of a good “coach” with a reassuring presence and zero issues of ego.
  3. A deep understanding of the returns, risk structure, liquidity, legal, and fiscal considerations of the products he/she sells or suggests to clients, along with the capacity to see with honesty if these products and this “long term savings/investment” program/approach is well-suited to the client at this particular point in the lifecycle and career cycle of the client.
  4. Has the ability to communicate and explain well and completely in simple terms. In other words, he/she has teaching skills.
  5. Lets say it: the ones with “sales talent” will have more success in the long run.
  6. A decent grasp of markets and economies, because, after all, the competent FA sits at the crossroads between the “ordinary Joe” client, the market experts, and domestic and global markets… He/she thus needs to “make things clear” for the client, which requires good mastery of the basics of macro financial analysis, which has been an ongoing jaw-dropping issue in many FAs I have crossed!

A good FA is conscious of the need for self education and will continue staying on top of market events and will refresh his/her knowledge to be able to keep up and explain to clients so as to provide a reassuring presence and market overview with integrity and professionalism.

The good ones have all these qualities and skills and refresh them regularly. They are typically very successful, calm, nice, knowledgeable, and confident. They will openly admit to not knowing something and will promptly read up on it to plug that gap. They put their client objectives and preferences first, just because that’s what they like to do, regardless of money. They genuinely like people and like to help others. They are roughly a third of the market.

The bad ones know their products and are good with people and are generally honest and well-intentioned, but are quite clueless of markets because they lack financial market and economic knowledge enough to confidently act as intermediaries between ordinary people and market experts. I call them “bad”, but they are typically good sales people and have enough capacity to bs others that they seem on top of their game. They may suffer from impostor syndrome, with reason. They may be good at selling financial products, but they are not good market intermediaries for ordinary people and have significant human capital “holes” in their knowledge, which they explicitly do NOT address with continuing education due to laziness and lack of personal curiosity. Note that all certified FAs must take mandatory hours of “ongoing/continuing education” every year, but they choose the courses that don’t fix their lack of knowledge — they go for the quick and easy “because they have to”, not for knowledge that would bring their game to the next level. These represent another third of the market.

The ugly ones are clueless about markets, fuzzy about financial products they sell, and have personality flaws, with little regard for integrity or work ethic. They are all huff and puff. They talk and look good, but are hollow shells and generally lazy and lack self discipline and organization. They’ll sell anything they can, regardless of the buyer.

How can you make the difference? Not easy for a non expert, but perhaps if you keep this short post in mind, ask questions and remain attentive to answers and “vibe”, you might “see through” the person and be able to settle on a top-tier FA! Click the heart!

Pascal Bedard