A competent client cannot develop a good financial plan with an incompetent advisor. Everyone seems to know that and there is no end of material about finding competent advisors and deciding how much they should be paid. In addition, there is no shortage of regulation proposed and implemented.
What about this? “Is it possible for a competent advisor to develop a good financial plan with an incompetent client?”
Not so much material on that question. It deserves some attention. Probably not by regulators but by advisors. Competent advisor / incompetent client turns out no better than the reverse.
The obvious next question is, “What are the attributes of a competent client?”
Here is an incomplete, disordered and not universally applicable list:
- They are at least moderately disciplined.
- They understand that the past, the present and the future are connected.
- They are willing to share and participate.
- They understand that their lifestyle is the principle thing to provide for and protect.
- Their lifestyle is within their reasonable means.
- They have or will have financial resources
- They understand that their future lifestyle depends on what they do with money today.
- The recognize that there are existential risks like death, disability, divorce, unemployment, and financial loss
- They recognize that debt drags their ability to finance both the present and the future.
- They are willing to learn
- They can understand and tolerate variability
- They are willing to change if circumstances turn out differently than they expect
- They are reasonably objective.
- They monitor their progress.
- They know how to create visions (goals)
- They know that they know too few of the details to be successful on their own.
- They know and believe that their financial plan is just a part of their overall life plan.
I don’t suppose there will be regulation to establish client competence, but advisors have choices. Deal with the ones who are competent or who can become competent. For the ones in transition, provide the necessary learning opportunities.
There is a rule that says only people who use and pay for a service can adequately judge its value. That includes the unspoken condition that they are competent to judge. If they are not, then you have no way to estimate how they will react to anything you offer or do. Random conflict.
Advisors court (both meanings) disaster when they impose plans without active co-operation. Competent clients automatically participate. Incompetent clients automatically do not. Writing a check is not active co-operation.
Advisors control their own fate.
Don Shaughnessy is a retired partner in an international public accounting firm and is now with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.