No matter where we each stand in the fiduciary-standard debate, we can all probably agree that at the core of the matter is a push for advisors to act in the best interests of clients.
But with many people living complicated financial lives—a pointed phenomenon among the wealthy—serving as a fiduciary for clients’ retirement accounts is only one aspect of truly acting in their best interests.
Indeed, those nest eggs, no matter how large, are only a small part of a client’s full financial picture. There’s estate planning, saving for kids’ college expenses, tax considerations, succession planning for business owners…the list goes on.
To truly place our clients’ interests before our own as financial advisors, we should dig into the different—but inextricably intertwined—areas of clients’ financial lives, help them identify their goals and develop a blueprint that we can coach them through as they work toward reaching their objectives.
In other words, it’s my opinion that the easiest way to serve as a true fiduciary and act in clients’ best interests is to engage them in comprehensive financial planning. This is the difference between guiding consumers to sales-based solutions, and empowering clients to make well informed decisions that fit their goals and objectives. Regardless, of whether or not the decision results in the sale of a financial product.
While a growing number of advisors aim to do this (and to those, this will be like preaching to the choir), far too many remain focused on the fastest path to AUM growth while nevertheless calling themselves financial advisors or financial planners. Whether intentional or not, the end result of incomplete—or nonexistent—planning can be, at worst, an unmitigated disaster for the client: unexpected tax consequences, a wrong beneficiary on an account, etc. At best, the client simply winds up getting advice or guidance that reduces the chances of the best possible outcome.
For instance, if a client purchased life insurance through you but you know little about how the policy fits into their overall estate plan, are the client’s best interests really at the heart of your relationship? If you invest a client’s money in low-cost exchange-traded funds that perform well but you have no idea how those holdings mesh with the client’s other investments or their tax situation, are you truly acting in their best interest?
Providing comprehensive financial planning is only possible if a) you are continually the student in a variety of financial areas and b) you have the processes and procedures in place to apply that knowledge usefully. That is, your practice management system assures that every nook and cranny of a client’s financial life has been delved into, considered in relation to all others, and done in a way that includes helping to keep clients on track with their plan.
The bonus is that when you implement a successful practice management system for comprehensive financial planning, you—the advisor—actually have the time and knowledge to successfully tackle the nuances of each client’s situation without working night and day. Another plus is business sustainability and profitability, as clients tell friends and family about their positive experience with your firm…you know, referrals.
Working in the best interest of clients also means our job as financial advisors must involve more than just number-crunching. We need to be educators and coaches in ways that go beyond our technical skills.