How to be a Good Client

Last week I wrote about the importance of goals-based investing and how it can be overlooked by the majority of those in the financial advice-giving business.

Much of the blame in that post fell on the shoulders of financial professionals, but financial consumers are not innocent on this issue. One of my readers pointed out to me that the problem cuts both ways. I’ve spent time on both the client and service provider side of things in my career and have come to understand that the client plays an important role in the success or failure of the relationship when paying for advice or investment management.

Too many investors are looking for the easy way out. They just want tactics or investment ideas without the requisite context or situational awareness. There are enough investors out there in search of the perfect investment — which doesn’t exist — that Wall Street is more than happy to continue making up ways to sell that dream to them.

Much of the success from the advisor-client relationship will occur because of the advisor, but they can’t do it all. If you hire an advisor you also have to do your part as a good client. In a Q&A with Tadas from Abnormal Returns a few months ago I talked about  what it means to be a good client:

While a good advisor has to set reasonable expectations for their clients, I think it’s also important for clients to have reasonable expectations for what their advisor can do for them. You can’t expect miracles from a financial advisor. Communication between the two parties is an overlooked aspect of a good long-term relationship, as well. No one knows their financial situation, emotional state or hopes and dreams more than you, the client. A client is the biggest expert on their own situation and needs. A good advisor will help you figure out your needs, but you can’t simply sit back and do nothing. A good client should always be asking questions and paying attention to make sure the advisor is doing their job. One of the most important jobs a client has is to make sure that their advisor is doing what they said they were going to do at the outset of the relationship.

Hiring an advisor is a great way to take some of the pressure off yourself from making big financial decisions on your own, but that doesn’t mean you can stop thinking about your finances altogether. It just changes those areas that you really need to pay attention to. You can’t outsource understanding. Clients still have to know how their portfolio and plan functions.

Here are a few other ways to think about being a good client:

Ask questions. You can’t be afraid to speak up when you have concerns or don’t fully understand something.

Ask the right questions. A few examples: How are you compensated? What are the total fees I will be charged? What’s the rationale behind your approach? Are there any conflicts of interest at play here?  How do you determine when to make changes to my portfolio or investment plan?

Manage your expectations. It’s very important to set the correct expectations up front for what you hope to get out of the relationship and then follow-up along the way to make sure the advisor is doing what they said they were going to do.

Clearly define all services up front before coming to an agreement. Some firms only offer financial planning and outsource the portfolio management function. Others only provide investment management with no formal financial planning. Some do both. That means you have to make sure you know what kind of firm you’re dealing with at the outset as these things can be confusing to those outside the world of finance.

Understanding the difference between a long-term process and short-term outcomes. Probably the hardest one to figure out and accept as a client, but it’s one of the most important aspects of a viable long-term financial relationship.

Further Reading:
Why Does Bill Gross Have a Financial Advisor
Managing Someone Else’s Emotions