Advisors Should Have Their Houses In Order

Last year on Black Friday, I was all set for a nice long day of football and internetting when sure enough, a half hour into the first game we got dispatched for a structure and so I was gone all day. I'm starting in on this post mid-afternoon and so far, no structure fires or any other calls for service! We just had a very serious structure fire a couple of weeks ago so it will probably be a while before we have another.

In my internetting today, I stumbled into an article at FA Mag titled Should Clients Know Their Advisor's Net Worth? This is an important topic beyond just satisfying a natural curiosity to know how much money someone has. An advisor's personal financial situation  might be very different than any random client or maybe even most clients but there is still an important opportunity to show the ability and propensity to make good decisions which is probably more important that knowing how much money an advisor has. To get one thing out of the way, if a client asks, an advisor should have an answer that at the very least is not evasive, I don't know that going to the penny matters but I've got about X total, 3/4 of that is in IRAs or whatever. Definitely answer the question directly. 

I don't think dollar amount is the most important thing though. If an advisor is 35-40, they're not going realistically going to have a million bucks unless they came from money or did something like played a sport professionally. For a younger advisor, I think it would be more important to know they are not choking on debt, are not living beyond their means and have started to put money away. 

At some point of middle age, an advisor who has been at it for a while should probably have some measure of financial independence, again not choking on debt even if they aren't sitting on a pile of money. There are extenuating circumstances like a sick child that needs uncovered care of some sort. Then at some age beyond the typical range of middle-age, and advisor should be able to swing retiring financially speaking. 

I'd love to hear different takes on this but at the very least and advisor who can stick with it is at least making a decent living and of course some make fortunes. If you're making a decent living for decades then I don't think my benchmarks are unfair but again, tell me if you think otherwise. I have always had a very small practice, I would say I make a fine living, maybe a notch up from decent. I'm not in the 37% bracket or the 35% bracket and I could keep going down before getting to my bracket but the point I've made here since the start has been about living below your means. I view that as a form of walking the walk as an advisor who gets paid to help people with their financial stuff. 

No client has ever asked me about my finances that I can recall but I've been very transparent in my blogging other than of course dollar amounts. Years ago I figured out for myself that advisors are overly leveraged to the fate of the stock market which is why I've had a very low personal allocation to stocks. Meb Faber obviously has a much larger audience than I do but this is a point he's talked about quite a few times. I have about 20-25% in equity exposure. Additionally it is my preference to not retire as I've mentioned many times so having a normal allocation to equities is not ideal in my case. 

The FA Mag article talked about how to spin negatives like bankruptcies into positives like if you learned a lot and that experience somehow filters into your practice. It's easy to be dismissive of that but the one really negative thing I had when the partners of the old incarnation of my firm got shut down, when I told clients, they were unfazed. I could sum up client reactions as "someone I don't know, did something bad that didn't impact my accounts at all and now you have a new email address? Ok." Sidebar, saying "no" to their offer of partnership in what I think was 2007 was one of the best decisions I ever made. 

The idea of walking the walk is important in any aspect of life where people might look to you for guidance, influence, help, leadership and probably several others. A doctor who is overweight giving diet advice is tough for me to take seriously. For my volunteer gig "the chief of a small department needs to be able to get it done" and a simpler way to phrase it for advisors is they should have their financial house in order.

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