It’s not what you know. It’s who you know, and what they know

Nick Foy, CFP®

Over on Twitter, Anthony Isola of Ritholtz Wealth has been uncovering the vile world of teachers’ retirement plans, which are typically high-cost annuities being sold as appropriate investment options. His findings have been eye-opening for many, though unsurprising for me.

My investment story includes a sad tale of being taken advantage of by an annuity sales guy. As time has passed, I’ve blamed him less and less for his indiscretion. I’ve started to figure he probably didn’t know better. Instead, I levy more blame toward his parent company, and a perverse system of incentives that allows his type to sell high-commission, high-cost products to unsuspecting consumers.

After a dozen years in personal finance, I’ve come to realize a few things about building trust with clients, but the most important thing to know is that most people are far too trusting based solely on external factors. Glossy brochures, some expensive TV ads, a fancy suit, and a slick haircut tend to be all that many need in order to have at least a baseline of trust with an advisor. Add in a referral from a trusted friend, a few charts and graphs, and you’re well on your way to building a book of business you’ve always dreamed of.

As you sit in their office, remember the new study confirming what we all knew already: White males are the most likely to BS their way through life.

So, what should people be looking for in an advisor in order to determine if they’re actually trustworthy? Here are a few thoughts:

  1. The advisor (or his/her firm) should be paid only by you. If there is some sort of perverse third-party incentive involved, the person isn’t a trustworthy advisor. They are a salesman.

  2. If you ask the advisor specific questions about his/her future market expectations, the answer should include the following three words: “I don’t know.” There might be other words in the answer as well, but the truth is that we should be investing based on the weight of the evidence thanks to decades of research into the how and why of markets, not because we’re 100% certain of any particular outcome.

  3. If you ask the advisor simple questions, they should know the answers. A friend of mine was formerly employed as an equity analyst by a large, national firm based in St. Louis whose name rhymes with Jedward Blones. As an equity analyst, my friend would take calls from advisors from around the country who had questions about markets and stuff. On more than one occasion, my friend claims that advisors would not know the difference between a stock and a bond.

    These are not trustworthy advisors.

  4. Your advisor should have a CFP® and/or CFA designation. S/he may have other designations as well, but they’re not as important.

    One summer, before we had kids, my wife and I were both studying for our applicable standardized exams: hers CFA level two, mine CFP®. We were tragically hip, as you can imagine.

    It turns out the CFA is the way, way harder exam to pass, but it may or may not be completely applicable for a personal financial advisor. She’s far smarter than I am, though, and she passed straight through all three levels.

    There are a lot of other commas out there, but these are the two most significant ones for our line of work.

  5. Your advisor shouldn’t chase shiny objects. Being distracted by new fads is appealing for many. Your advisor should be helping you avoid such nonsense, not encouraging it. Look for someone who can hold you accountable, and keep things in perspective.

This list is incomplete, but it’s a good starting spot. To find such an advisor, a good bet is to check out and

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