Choosing a Trusted Advisor

Excerpt below from Simple Wealth, Inevitable Wealth,
by Nick Murray, 1999.
Published by The Nick Murray Company

Of this you may be absolutely sure: there’s a superbly qualified, caring and committed financial advisor out there for you. Moreover, the value of that advisor to you and your family—in incremental return, in mistakes not made, in time and worry you needn’t expend trying to do it yourself — will greatly exceed the cost of the advice.

Left to your own devices, you’d almost certainly draw the same conclusion. “It’s OK if I mow my own lawn, paint my own house or change my own spark plugs,” you would reason. “I’ve got the time, I can save a few bucks, I need the exercise, and besides, I kind of enjoy puttering around like that."

“On the other hand, I probably don’t want to do surgery on my own aorta, nor draw up my own estate plan. Too tricky; too much riding on the outcome. The cost is money well spent, because of the years added to my life by my expertly patched aorta, or the estate taxes saved by my professionally drawn estate plan. Oh, yeah, and investing: who has the time or the temperament or the expertise to do their own investing?”

You would reason this way — if you weren’t constantly bombarded with essentially journalistic arguments that you’re better off doing it yourself. Why pay an advisor to pick mutual funds for you, when you can just as easily pick no-load funds with five stars from Forbes’s (or whatever magazines’s) Honor Roll?

This line of reasoning sounds seductively logical until you examine its toxic, unspoken premise. Which is, of course that wealth is primarily driven by individual fund selection. But as we’ve already seen—wealth is not determined by investment performance, but by investor behavior. In other words, what your funds do versus other, similar funds is relatively unimportant. The critical issue is what you do, and avoid doing.

• Do you figure out just how much it will take to make your financial dreams a reality?
• Do you make a lifetime investment plan which reasonably assures the achievement of your goals?
• Do you fund that plan with the right kinds of investments (as opposed to the illusion of “the best” mutual funds)?
• Do you discipline yourself not to switch funds into whatever’s “hot” at the moment?
• Do you never lose faith in the plan, regardless of the bear market/sky is falling/ apocalypse du jour?

These are the decisive issues, and they are entirely behavioral. Is it not just common sense to know that you are far more likely to behave appropriately, and thus achieve your goals, with the help of a knowledgeable, caring coach?