Conversely, there are clear signs that a client can't process the avalanche of information confronting him. They include an absurdly short-term focus and an inability to prevent emotions and momentum from influencing their decisions. Other symptoms, such as succumbing to the Qualcomm syndrome and no understanding of risk, probably are familiar to most advisors.
Another litmus test is whether a client understands how quickly the differential between long-term and short-term capital gains becomes an exponential gap. But advisors themselves have to watch the signals they send clients. When the asset-management boom took off in the early '90s, advisors expended painstaking efforts to design meticulous quarterly performance statements. ''We put out reports that focus on the exact things (short-term performance) we tell clients to ignore,'' Shine notes.
How quickly individuals grasp the concept of diversification and asset allocation is also a yardstick that sheds light on their financial IQ. ''Asset allocation is the only thing that works in the long term, but you will never be at the top,'' Shine says. ''Of course, you'll never be at the bottom, either.''
Of course, smart clients must be able to recognize what they know and what they don't know and make sure they convey this to their advisors. Sharp individuals tend to gravitate towards the parts of the financial planning process that are sexy or intellectually intriguing and gloss over the nuts and bolts. So it's not surprising that Shine finds many of her clients are sophisticated about investments and expect to participate in both stock and mutual fund selection processes, but recognize they need help with taxes and insurance.
What many advisors find so disconcerting about clients' rising financial intelligence is the implications for their own survival. Shine is convinced their paranoia is misplaced. ''Many of us (advisors) think clients get up in the morning, and the first thing they think about is, 'How can I reduce my financial planning fees?' '' she laughs.
Research conducted several years ago by Charles Schwab & Co., the top brokerage for self-directed investors, has concluded that, despite investors' torrid and, possibly brief, love affair with online trading, only about 10% of them are true do-it-yourselfers. The remainder are split fairly evenly between delegators and semi-delegators. However, the baby boom generation, which accounts for nearly 90% of the asset growth in the last five years, falls heavily into the semi-delegator group, so advisors looking to grow their practices must address their desire for involvement.
Ultimately, Shine is convinced clients need or want advisors a lot more than many of her colleagues think. She discovered this several years ago when she set up a sideline business to do written financial plans without taking on asset management, a throwback to her early days as a 26-year-old salaried advisor at New England Financial Advisors in the '80s. She was stunned when 11 of 12 clients showed up the next year to become full-service, investment advisory clients.
''Many clients know what they're doing, but investing keeps getting more and more complex, and they are going to have to get deeper into a lot of issues over the next 20 years,'' she says. ''It becomes more and more anxiety-provoking. I'm not sure that's ultimately what they're going to want to do. Many retirees spend a lot more time on their investments during the first year of retirement than they do in the third or fourth year of retirement.''
The ultimate sign of a smart client is one who keeps money in its proper perspective. ''If a savvy client hits it big in a stock, it doesn't change their lifestyle, except in charities," she says. "Their money is not who they are. Deep down, I don't think money is that important.''