You've all seen the Allstate insurance "mayhem" commercials. They've had the "mayhem" series in play for quite some time and as I write this they've created a contest where you can influence them on which version they show during the Super Bowl.
One of the themes has been making fun of "do-it-yourselfers" - like an orthodontist taking on a home improvement project. Click here to see this 15 second commercial - hilarious! Orthodontists are highly trained, educated and caring people - in their profession. But all their talent, brains, caring and good intentions do not make them experts at investing or even more importantly, financial planning.
An easy target and so true! Obviously, unless the orthodontist has a significant amount of experience and regularly practices home projects, their workmanship will fall short and it will be downright dangerous to be around them as they work! The same is true within the same general business. Look at home improvement: will a painter be a great electrician and visa versa. Only rarely. Even within a general area, specialized knowledge is very important.
The same is true of people who attempt to take on financial planning and investing without experts guiding them.
Interestingly - many "financial advisors" - the product salespersons - make the same mistakes as those who are not trained. The "real advisors" - registered investment advisors that are licensed, willing and able to give investment advice are less likely to make investment mistakes. And investment success is not about homeruns as the media portrays it, but rather about avoiding mistakes.
One of the proofs of this is published annually - the Dalbar Report - see below. This report is not just interesting - it is stunning! Investors VASTLY underperform the S&P 500. LESS THAN HALF!
Graph of investors returns versus the S&P 500
Why does this happen? Basically it comes down to discipline - to remaining calm and staying invested in a very diversified way. Many financial advisors find it difficult to stay calm themselves and are selling products that use fear and greed as a part of the sales process. So they are not much help over time. But the prudent RIA's are held to a fiduciary level of care and we will help you overcome your temptation to succumb to your emotions.
If you think about it - the most successful people are those who know their field of expertise and keep to that - and then get great at hiring others to help them in all other areas. This also frees up their time to take care of other important efforts that only they can do - like their own mental, spiritual and physical health, loving their family and charitable works.
In financial services and investing, there are many influencers successfully convincing smart people to venture where they shouldn't - to get some education and be their own "experts". Think of CNBC, Suze Orman, Wall Street Journal, brokerage houses and personal finance self help books.
Then there are the folks like Merrill Lynch, and the like that are "in-between" - they sell you products and transactions and are willing to meet you halfway - they collaborate with you but take no responsibility. Since they are collaborating with the non-expert (you), it makes sense that they would not be willing to take responsibility. Their behavior spans a wide range from being a "yes man" or "order taker" all the way to giving advice - but without taking the responsibility. Their compensation structure also creates conflicted advice - since their compensation comes from products they sell and their employer, and not directly from you. Loyalty goes to the source of the paycheck.
When you look at being successful in any project you need two ingredients. You need 1) great advice and 2) you need to implement that advice. Note that I did not write perfect advice. That wouldn't be fair to anyone because perfection is hard to measure and hard to achieve.
What would quality advice look like? One way to develop great advice is to minimize mistakes. A great way to accomplish it is to create a cross-functional team of several independent experts that cover different areas of personal finance. Example: CPA, CFP and investment advisor. If all three agree that the advice being provided is excellent (or agree on fine-tuning to make it excellent) - that assures you it is excellent advice. That is exactly what we do and we have received calls from across the country from those wishing to copy us. It's important that this process is formalized. Many advisors will say, "I called so and so" and call that "collaboration" but it is not. You need all three on the phone at the same time, reviewing each client situation and advice in detail, on a regular schedule. It must be formalized.