One thing I’ve learned from working with hundreds of entrepreneurs is that when it comes to finances, they often don’t know what they don’t know. For most entrepreneurs, their business is a passion play. They started it to solve a problem, or to follow an important creative interest. But not every entrepreneur is a financial expert. In fact, some have no background in finance or accounting at all. If this sounds like you, how can you be sure you’re making the right money decisions for yourself, your family, and even your employees? That’s where a trustworthy financial adviser can help.
A “trustworthy” adviser is more than someone who is likeable, or who came recommended by a friend or a family member. When choosing the right financial adviser for you and your business, you should first look for someone who understands your unique needs and takes a holistic approach to your situation. But more important, you need an adviser who places your interests first.
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While that might sound simplistic, here’s a surprise: Some people who call themselves financial advisers can legally guide you toward solutions that pad their wallets more than yours. The reason has to do with how the U.S. regulates the financial advice industry. Some advisers -- typically those who sell financial products like stocks, bonds, insurance, annuities or other investments -- receive commissions and must only meet a standard of “suitability” -- meaning the products they recommend must be “suitable” for you. Others, such as Registered Investment Advisers, or RIAs, must meet a “fiduciary” standard -- meaning they must place your interests first when providing advice.
However, it can be even more complicated. Many firms are “dually-registered,” meaning the advisers may follow the fiduciary standard when providing advice on allocation of your investments, but they follow a suitability standard when selling products through their brokerage arm. Make sure you know who you are dealing with before making major decisions.
Because the word “suitability” has a ring of trust and authenticity, many people don’t understand there’s a big difference between the suitability standard and the fiduciary one. The medical profession has one standard: “Do no harm.” But the financial world has two, and majority of the public doesn’t know that the suitability rule is a lower standard of care.
Let’s look at two additional aspects a trustworthy adviser possesses: “eptitude” and a strong process.
Eptitude vs. Aptitude
Author Atul Gawande discussed the concept of “eptitude” in his book, The Checklist Manifesto. Gawande, who is also a surgeon, observed that among his colleagues with a high aptitude ¬¬— a natural ability to accomplish a certain skill set ¬¬— some could have blind spots that make them inept when dealing with complex and interdependent systems. To ensure “eptitude,” Gawande advocates checklists.
Eptitude is important for financial advisers, too. For example, an adviser might have investment and financial aptitude, and even a level of aptitude related to understanding tax implications. But do they understand your situation as an entrepreneur? What evidence can they provide to show their understanding of complexity? I often meet business owners who have been with an adviser for a long time, but the adviser isn’t strategic or helpful, or lacks the vision to anticipate the entrepreneur’s business and personal financial needs down the road. If you relied heavily on that adviser, the results could be disastrous!
The Importance of Process
Imagine your business just received an important contract to build rocket ships for an outer space tourism company. You assemble your team on the first day of production and tell them to build a rocket. What should happen first? If manufacturing comes before design, will the final product be viable?
In The Checklist Manifesto, Gawande stresses the importance of taking a proactive approach to complex tasks. Checklists help us do the most important things in the right order, even when the situation is complex and chaotic.
An adviser with eptitude has a strong process in place to identify and understand what’s important to you. That process also includes monitoring success and adjusting along the way. As a client, you should expect your adviser to be clear about how your relationship will work. The right adviser should be able to communicate how to connect your business growth with integrated and holistic wealth management that includes tax, financial and investment strategies. Those strategies will determine the steps you’ll take together to achieve your goals.
Achieving Financial Well-Being
Finding a trustworthy adviser requires due diligence on your part. As a CPA, when I perform an audit, I must ask for evidence so I don’t unduly rely on information that turns out to be inaccurate. Yet when entrepreneurs take referrals from a friend or an associate, they often don’t ask for enough evidence to discover whether an adviser is right for them and their circumstances.
Entrepreneurs often like to go with their gut feelings. But when it comes to choosing an adviser, I invite you challenge the status quo and ask for evidence. Look for an adviser who can point out your blind spots, share their observations, and question your perceptions.
The wealth management arena can be overwhelming, with different types of advisers, unfamiliar terms, and the noise of the financial media and well-intended friends. The right adviser will cut through all that. It is critical to ask yourself:
- Am I getting what I need from my relationship with my financial adviser?
- What questions should I be asking that I am not?
- Do I have a good understanding of the process he or she is using?
Postponing decisions about finances can mean the difference between a retirement spent playing golf or tennis every day and one where you’re forced to work at a part-time job. You can get where you want to go by remembering that the result will always reflect the process. Remember, your financial well-being is a big-picture scenario -- all the moving parts need to work together.
About Wayne B. Titus III, CPA/PFS, AIFA®
Before Wayne Titus founded AMDG Financial and AMDG Business Advisory Services in 2002, he spent 15 years at two large accounting firms. He dove into entrepreneurship to make a bigger impact on people’s lives. Titus is a fee-only fiduciary adviser, meaning he owes loyalty to his clients and places their interests first. Wayne’s firms integrate tax, financial and investment strategies to help clients make financial and life transitions successful on purpose. His latest book is The Entrepreneur’s Guide to Financial Well-Being (Lioncrest Publishing, March 2019). To learn more, visit amdgservices.com.