What, if any, is the duty of a financial adviser to educate their client as to macro and micro economics, taxation, psychology, longitudinal spending models, mortality and morbidity models, financial products and processes, financial planning in general, their plan in particular and how they are all connected?
Make no mistake, they are all connected.
What is the client’s duty to learn more?
If the client does not know enough, at some point the client ceases to be the planner and the adviser, by default, becomes the planner. That point will be different for every adviser and for every adviser/specific client relationship. It probably changes over time too.
It is when the client stops making the strategic decisions and the adviser adds strategic decision making to the tactical and logistical things they were doing before.
The ideal relationship is one where the client knows what they are trying to do, when they need it done, who is involved and with what resources it will be achieved. The adviser supplies methods of achieving the goals and implements the one or ones the client decides upon.
Problems happen when the client is incapable of deciding which tactics to implement because they have too little knowledge of the surrounding circumstances. This is when the adviser’s “closing techniques” become important. Advisers make little money if the client does not make a decision. So there is a problem. If the client cannot make the decision a skilled adviser ends up making it for them.
Most of the time that won’t matter because if the client knew enough about all the circumstances, they probably would have made the same decision. It becomes a problem under three conditions:
- The adviser did not know enough about the client and in fact the client’s decision would have been different.
- The adviser is acting in their own best interest
- The circumstances change later and the client accepts no responsibility for the failed decision
The world is a big and conflicted space. A well-armed adviser cannot take a poorly armed client into that space and believe that they can be the protector under all circumstances. That would be like the adviser going to a gunfight with the client. Adviser with a machine gun and body armor. Client with a t-shirt and a Swiss army knife. The adviser would have to be right every time for the client to have a hope of survival and the client could not contribute anything to make the adviser’s job easier.
Clients must participate. Client needs to understand both the purpose and the general idea of the techniques employed. They need to understand their resources and how their needs change over time. They need to be able to understand how they fit into the world and how their techniques might change if the world changes. They do not have to be experts but they need to know the general idea. Aware is good enough.
In the army the smallest fighting force is a mutually supporting pair. A well-trained pair is dramatically more powerful than two individuals. Individual soldiers do not do well in combat.
If you are smart as an adviser, you will train your client/partner. Your survival may depend on it.
Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.