Entrepreneurs: Effective Communication with Your Financial Adviser is Key

Updated on

As a financial adviser, I communicate with clients nearly every day. Our firm has hundreds of clients, so we use client relationship software — as many businesses do — to keep track of client goals, milestones, problems we need to address, and notes from our prior meetings. But beyond our detailed record keeping, how we communicate with our clients is even more important. It could mean the difference between an open, trustworthy relationship and one in which the client is uncomfortable or unwilling to share vital information.

Get The Full Ray Dalio Series in PDF

Get the entire 10-part series on Ray Dalio in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues

Q1 2021 hedge fund letters, conferences and more

When I read surgeon Atul Gawande’s description of the three types of doctors in his book, Being Mortal, I realized financial advisers could be categorized in a similar way. Gawande writes:

  • The paternalistic doctor tells patients what to do.
  • The informative doctor sits down with you and goes through all the different options you have regarding your health issue. However, He or she doesn’t explain why one option might be better than another and doesn’t assist you in making decisions.
  • The interpretive doctor gives you information and helps you understand and focus on making the best decision for yourself. They are on the journey with you.

With financial advisers, some are paternalistic, telling you their strategies and insisting you should follow them. Others are informative, but they fail to help you fully understand they strategies they implement. An interpretive adviser takes you through a process that educates you on all your options. He or she helps you sift through the incessant, confusing noise of the market and the media with the goal of serving you and your family. In my view, an interpretive adviser provides the most value.

Finding the right interpretive adviser depends in part on the intention and expectation you bring to your search and into your initial meeting. If you walk into a meeting and say, “Hey, make me money!” an interpretive adviser will have a very different response than that of a paternalistic, or even an informative one. The interpretive adviser is going to ask numerous questions, including: Why do you want to make money? What’s important about money to you? What are your goals and objectives?

Adviser as Integrator

If you’re an entrepreneur, you know how much time you spend on your business. After all, it’s your baby! That often means that your focus is on the urgent and important things you must accomplish now, rather than on meeting with your financial adviser. However, if you’re in a strong, communicative relationship with an interpretive adviser, you’ll have an accountability coach who understands the importance of talking about how your goals are evolving over time. The journey is a collaborative one!

Entrepreneurs should welcome this type of adviser into their lives because an interpretive adviser offers a complementary skillset. In his book, Traction, entrepreneur Gino Wickman discusses the value of the unique relationship between entrepreneurs, who are visionaries, and “integrators.” An integrator manages many of the day-to-day operations, leaving the visionary to do what he or she does best. When it comes to your finances, think of yourself as the visionary and the interpretive adviser as your integrator. The integrator builds bridges between your personal and business lives. Communicate with them often.

A Foundational Communication Process

Just how often is “often?” For optimal communication, I use a four-stage process that establishes the responsibilities of the adviser and the entrepreneur:

Stage 1: The entrepreneur is the content manager. As the content manager in the relationship, the entrepreneur is responsible for knowing the “here and now,” the goals and objectives, and anything else that makes up the fabric of his or her life. The entrepreneur needs to share that information with the adviser, even if it doesn’t seem relevant.

Stage 2: The interpretive adviser processes the information. The adviser has a robust process for analyzing the entrepreneur’s information and developing recommendations. He or she presents the recommendations and assists the entrepreneur in understanding them and determining which recommendation best accomplishes the goals and objectives.

Stage 3: The entrepreneur chooses a direction. Based on the recommendations of the adviser, the entrepreneur decides which option to implement, and the two agree on their roles in implementing the recommendation.

Stage 4: The adviser implements and monitors the entrepreneur’s decision. From here, the adviser and entrepreneur can check in as often as they feel is necessary, if the entrepreneur’s goals and objectives remain the same. However, if something changes, the process should start again.

Responsibility for this communication process is iterative and ongoing. Let’s look at an example in the case of Ken and Joy. Ken is a tech entrepreneur, and Joy works at a corporate job. They have one child, and Joy wants to quit work to have another. But Ken and Joy worry that if Joy stops working, they won’t be able to accomplish their goal of retiring early. In stage one, the couple shares the information with their interpretive financial adviser, Gina. In stage two, Gina analyzes their situation and presents several options: One option is for Ken to consider saving more outside his 401(k) plan. Another is for the couple to put off buying a new home for another three years. A third option is for Ken to hire Joy part time after her maternity leave ends and for Joy to participate and start contributing to their company’s 401(k) plan.

In stage three, Ken and Joy decide that Joy will work at Ken’s company part time after the baby is born, and that Joy will contribute to her own 401(k) plan. The part-time income and tax-deferred savings will keep them on track for retirement. In stage four, Gina plans to monitor the couple’s finances for three years after the baby is born until they are ready to buy a new house. If anything changes, the communication process starts over.

Communication Breeds Confidence

A strong communication process gives you confidence because you know whether you’re on track. Baseball player Micky Mantle used to say, “If you don’t know where you’re going, you might not ever get there.” Creating wealth comes down to crystallizing your objectives. In a well-laid process, you get all the pieces in place so, eventually, your plan grows strong enough to support your journey.