MONEY financial advisers

Why Financial Advisers Need a Good Bedside Manner

150701_ADV_BedsideManner
Getty Images

It's not just what you say, it's how you say it.

We financial planners are a bit like doctors: In both professions, how successful you are early on in managing people’s health, whether financial or physical, can have a big impact on how well those people live later on.

Like doctors, we financial planners also benefit from having a good bedside manner when communicating with the people we’re helping. That’s particularly true when the news we have to deliver is not so good—especially if the bad news stems from a self-inflicted wound.

Not too long ago I read a financial advice column in which the person seeking advice shared how his financial decisions, his health challenges, and macroeconomic events resulted in him and his family being in a very tough financial situation.

As I read the writer’s request for guidance, I could feel his stress. He was obviously seeking help and didn’t know where to turn.

The columnist’s response was unsympathetic. There was harsh judgment of the person asking for help and the financial decisions he had made. To say the response lacked empathy, would be an understatement. As for the advice itself, you might call it “tough love,” but I thought it was minus the love.

I’m sure we’ve all experienced some degree of poor service, but chances are it was a transaction that started and ended in that moment. Many of us have encountered a health professional who has been cold and aloof, and I’m sure it didn’t feel good.

I have had the pleasure of seeing doctors who were very empathetic, but I’ve also talked with doctors who shared undesirable news in a matter-of-fact manner then simply walked away. I wasn’t sure what hurt more—the news itself or the manner in which it was delivered.

Financial planners are not doctors, but we are entrusted professionals who look after our clients’ financial well-being. When financial stress hits the people we serve and they seek our assistance, we have to ask ourselves whether the advice we’re giving is judgmental or empathetic. Are we focused on the person’s financial need, or are we being more critical of the person in need?

While I don’t view any of my clients as children, I’ve learned in raising my sons that tough love isn’t always effective. Encouragement can be just as effective as wagging a finger.

Suffice it to say, I believe having a good bedside manner can make a huge difference in helping our clients achieve better financial health.

Frank Paré is a certified financial planner in private practice in Oakland, California. He and his firm, PF Wealth Management Group, specialize in serving professional women in transition. Frank is currently on the board of the Financial Planning Association and was a recipient of the FPA’s 2011 Heart of Financial Planning award.

MONEY

4 Qualities a Financial Adviser Ought to Have

Yoda in Star Wars Episode V: The Empire Strikes Back
Lucasfilm/20th Century Fox—The Kobal Collection Yoda in Star Wars Episode V: The Empire Strikes Back

Clients want a leader... but not the stereotypical kind.

It’s not surprising that, according to a 2014 study, almost 90% of clients want their financial planner to be a strong leader.

What is surprising, however, is the way those clients described leadership.

In the study, conducted by the Financial Planning Association’s Research and Practice Institute—and which Julie Littlechild of Advisor Impact discussed in a recent speech—clients said a strong leader should have these four qualities: expertise, skill as a guide, deep understanding, and vulnerability.

Let’s examine those qualities.

1. Expertise: Leaders typically have a strong base of professional expertise that goes beyond general knowledge of their field. This is why continuing education is paramount to good financial planning.

Even more important, leaders have wisdom: the combination of knowledge and experience. A new college graduate has knowledge. A 30-year planner has a high probability of having wisdom.

Clients want planners to be experts, to have knowledge about all things financial, and to know how to apply that knowledge to clients’ unique sets of circumstances.

2. Skill as a guide: Guiding is the ability to use expertise and wisdom to help clients go where they want to go, not where the planner thinks they should go. An effective guide first finds out where clients want to go, devises the safest, most effective route to get them there, and leads the way.

I don’t know of any academic courses that teach financial planners how to guide. It’s learned experientially. Planners learn it by walking the walk, treading the same path for themselves that they will lead their client on.

3. Deep understanding: What’s surprising about this quality is the word “deep.” Certainly, leaders need to understand their followers. But to understand someone deeply is much more intimate and encompassing than a superficial understanding of a person’s general needs, intentions, or desires.

Deep understanding comes through hours of genuine listening, asking probing and thoughtful questions, and having a genuine concern for the client’s well-being. It establishes a deep sense of belonging and acceptance.

For most financial advisers, the capacity and skills to understand someone deeply are not intuitive. They need to be acquired by learning and especially by experientially applying the principles of Motivational Interviewing, Appreciative Inquiry, and Positive Psychology. This training is rarely part of financial planning or finance programs.

4. Vulnerability: This was the most surprising quality. My image of a leader is that of a General Patton or President Lincoln: strong, resolved, visionary, courageous. Not vulnerable. Yet, in truth, vulnerability requires incredible strength of character, vision, and courage.

Financial advisers who are comfortable with their vulnerability are able to expose their humanity and failings. All of us can relate to someone who has screwed up. None of us can relate to someone who hasn’t. Planners willing to admit their errors beget trust and confidence in those around them. The strength to be vulnerable comes from spending a lot of time in self-reflection and personal growth.

Of the four qualities people look for in a strong leader, only one, expertise, can be learned academically. The other three—skill as a guide, deep understanding, and vulnerability—are learned experientially. Anyone who completes the course of study to obtain a financial planning degree has gained only 25% of the necessary skills to become what their clients are looking for in a planner. Someone who adds a degree in counseling conceivably has 50% of the skills.

Becoming a trusted leader and adviser goes further. It requires us to develop and apply in our own lives the relationship skills and leadership we want to offer to clients.

==========

Rick Kahler, ChFC, is president of Kahler Financial Group, a fee-only financial planning firm. His work and research regarding the integration of financial planning and psychology has been featured or cited in scores of broadcast media, periodicals and books. He is a co-author of four books on financial planning and therapy. He is a faculty member at Golden Gate University and the former president of the Financial Therapy Association.

MONEY financial advice

How Vanguard Founder Jack Bogle Invests His Grandchildren’s Money

Ahead of Father's Day, Bogle also talks about the investment advice he gives—or doesn't give—his children.

Just a few days before Father’s Day 2015, MONEY assistant managing editor Pat Regnier interviewed John C. “Jack” Bogle, the founder and former CEO of Vanguard, the world’s largest mutual fund company. The elder statesman of the mutual fund industry—and a pioneer in index investing—talked about the investing advice he gives his children, one of whom runs a hedge fund, along with how he invests, and doesn’t invest, on behalf of his grandchildren. Look for an in-depth interview with Bogle in an upcoming issue of MONEY.

Read next: Where are Most of the World’s Millionaires?

MONEY stock market

A Financial Planner’s Investment Advice for His Son — and Everyone Else

family on roller coaster
Joe McBride—Getty Images

Father's Day has a financial adviser thinking about important lessons to be passing along.

A friend recently asked me to recommend a book for his son on buying and selling stocks.

As I pondered his request, I started thinking about the various books I’ve read or skimmed over my 24-plus years of working in financial services. Initially, I was overwhelmed with titles. Then I started thinking about my own teenaged son and the difficulty I was having getting him to think differently about his money—that he won’t always be able to depend on his parents to help him out. Anyway, I thought if I couldn’t compel a 14-year-old to change his ways, what could I say to my friend’s son, who’s in his 20s?

Finally, I asked myself what would I say—not bark, I promise—to my own son if he were in his 20s and came to me for investing advice? This is what I came up with:

You can go to just about any investment site (e.g. Vanguard, Schwab, or Fidelity) to learn the fundamentals of investing. You need to know, however, that the process of buying and selling is not hard. The real challenge is knowing what to buy, when to buy, and when to sell. If you plan to make investing a career, there is a lot more you need to know than you can learn from a website or book. That would require another conversation.

For now, I would advise you to think long and hard about why you want to invest. In other words, take time to map out your life goals for the next three to five years and the financial resources you will need to achieve them.

Simply saying you want to invest “to make money” will not work when you are invested in a fluctuating market. Short-term volatility can be a bear (pun intended). You have to be willing to ask how much money you can withstand losing when the market goes down, as well as how much profit is enough. As the old Wall Street saying goes, bulls make money in up markets, bears in down markets, and pigs get slaughtered. You also have to be willing to ask yourself how long you plan to stay invested, no matter how much the market fluctuates or falls.

Why am I focusing on declining markets and roller-coaster, up-and-down markets? It’s because people tend to fixate on rising stocks and profits, but pay very little attention to the markets’ inevitable declines. Everyone loves bull markets, which are great for the average investor. But when the market heads south quickly or takes a long, slow journey to the cellar, someone who was looking to make a quick profit can suffer a lot of stress.

Finally, I hope this short note does not come across as too preachy. I congratulate you on your interest in investing, and I will end by saying you are way ahead of the game because you’re thinking about investing now instead of later. Good luck.

Read next: The 3 Most Important Money Lessons My Dad Taught Me

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Frank Paré is a certified financial planner in private practice in Oakland, California. He and his firm, PF Wealth Management Group, specialize in serving professional women in transition. Frank is currently on the board of the Financial Planning Association and was a recipient of the FPA’s 2011 Heart of Financial Planning award.

MONEY Kids and Money

The 3 Most Important Money Lessons My Dad Taught Me

father letting son swipe credit card at cash register
Monashee Frantz—Getty Images

Many of our financial dos and don'ts are instilled by parents at an early age. Here's what my father passed along to me.

One of the responses I often hear from clients toward the end of a financial planning meeting is, “This sounds good. I’m going to talk to my dad about it.”

For many of us, our mothers and fathers have played a profound role in shaping our financial habits—so much so that we still discuss our plans with our parents well into our adult lives. Whether it’s deciding where to invest retirement savings, how much to pay for a first home, or how much of each paycheck to invest in a 401(k), we sometimes go to our parents to help make decisions and to doublecheck we’re on the right path.

These conversations with many of my clients have me thinking about the values and habits my father instilled in me at a young age. Three very powerful lessons come to mind:

Live Within Your Means

On my eighth birthday, my father began to teach me how to live within my means. As I write those words, it sounds funny, even to me. He sat me down and taught me about an allowance. He was going to provide me with a weekly stipend that I would later come to realize was my means. I was going to have a set amount of money that I could spend on anything I’d like. The only catch was that once I spent it all, I couldn’t buy anything else until the following Friday when I received my next allowance. At the age of 8, I began to learn how to budget, how to save, and how to spend wisely.

Plan For the Future

At 14, my father took me to his bank’s local branch to open my first savings account. We sat down at the desk with the bank manager and I shared that I had saved $370 and I needed a place to keep it so it would grow. Entering high school, I knew I wanted two things on the day I turned 16: a driver’s license and a car. If I was going to make them both happen, I was going to need a plan. Dad and I worked out a savings plan to help me save the money I earned from a part-time tutoring job. It took me a bit longer to save up for my first car than I anticipated, but planning and saving to reach a future goal is a valuable life lesson—one I share with my clients every day..

Start Today

When I was 16, I sat down again with Dad to learn about a Roth IRA, retirement planning and perhaps, most importantly, compound interest. I learned that by starting early and investing, my money could grow. By opening an investment account and saving into my Roth IRA with the possibility to earn compound returns, I could potentially become a millionaire when I was older—a crazy thought for a 16-year-old. We charted out a simple savings plan to invest a portion of each paycheck I earned—a savings and investing program I follow to this day.

On the occasion of Father’s Day, I thank you, Dad, for instilling many of my financial values and habits at a young age—habits that will continue to shape the decisions I make for years to come.

Read next: 3 Financial Lessons For Dads on Father’s Day

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Joe O’Boyle is a financial adviser with Voya Financial Advisors. Based in Beverly Hills, Calif., O’Boyle provides personalized, full service financial and retirement planning to individual and corporate clients. O’Boyle focuses on the entertainment, legal and medical industries, with a particular interest in educating Gen Xers and Millennials about the benefits of early retirement planning.

MONEY financial advice

Nobel Prize-Winning Economist Shares His Best Financial Advice

Nobel Prize winner Robert Shiller talks about the upside of financial advisers and the downside of compound interest.

Nobel Prize winner Robert Shiller tells investors to get a financial planner. He advises people to speak frankly and honestly with an adviser about their financial situation. Financial advisers are not always right, but Shiller says there is a lot to be gained by speaking to an adviser or fiduciary. He also warns that compound interest may not compound as much as you hope it will.

MONEY financial advice

NatureBox CEO’s Biggest Money Mistake

Gautam Gupta, CEO of healthy snack company NatureBox, shares his advice for entrepreneurs—and his biggest money mistake.

MONEY financial advisers

Cleaning Up After Another Financial Adviser’s Bad Advice

broken piggy bank fixed with tape
Corbis—Alamy

Explaining to clients that another financial adviser has given them bum advice can be awkward. Here's how I do it.

Average Americans have a poor opinion about financial advisers, and with good reason. Too many “advisers” are just salespeople for products that generate commissions for the adviser but rarely deliver the promised investment returns to the client.

As a financial adviser myself, I often see unsuitable investments in prospective clients’ portfolios. I can’t just badmouth those clients’ current adviser. If I point out how this adviser has abused their trust, how are they going to trust me? What can I tell the prospect about another adviser’s bad advice without dragging myself down to his or her level?

Recently I reviewed the investment statements of a prospect family who owned about $1 million in assets in joint taxable accounts and IRAs. The IRAs were invested primarily in variable annuities. The family had already shown me that their retirement income needs were covered by pensions. Their primary interest was in asset transfer to their children.

There’s nothing wrong with variable annuities if used for the proper purpose. For example, clients may have already maxed out 401(k) contributions but still want to set aside additional cash in tax deferred investments. However, there is no reason, in my opinion, why you would ever put a variable annuity inside an IRA. There is no additional tax benefit, but there is an extra layer of cost and complexity and there is a loss of liquidity due to surrender charges. If you don’t like the investment returns of the annuity, it could cost you up to 11% or up to 11 years to get out.

There’s a wrong way and a right way to deliver bad news. The wrong way is a declarative statement along the lines of, “You idiots were totally taken advantage of.” The prospects tend to grab their papers and stomp out the door.

The right way is to engage the prospect in a series of questions and answers; that educates clients without making them feel stupid.

“Tell me about your thought process when you purchased these annuities,” I asked.

“Our broker explained that the annuity would grow tax-free with the stock market, and then at a certain point we could convert to a term annuity which would pay out a level payment for the rest of our lives.”

“Did he note that your assets are already in an IRA?” I asked. “Where growth is tax-free already?”

“No,” they replied.

“Did he tell you that you could also achieve growth by investing in a basket of mutual funds?”

“No.”

“Did he advise you that once you convert to a fixed annuity, there’s no residual value for your children?”

“No.”

“Did he explain that, because of the various fees loaded onto your investment, you were likely to have sub-par returns?”

“No.”

“Did he explain what the surrender charge is?”

“Sure!” they replied. “That’s the insurance company’s way of making sure we stay committed to the annuity.”

“That’s the marketing department’s answer to what a surrender charge is,” I said. “What the insurance company doesn’t tell you is that they paid a commission of up to 11% to your broker on the sale, which the insurance company amortizes over the next 11 years at one percentage point a year. So if you exit in year five, there’s still 6% of that 11% commission to recover, hence the 6% remaining surrender charge.”

By this point, the couple was looking distinctly uncomfortable.

“Look,” I said, “there may have been some other reason why he recommended this strategy. All I can say is that for the needs that you have described, I would have invested you in a plain vanilla basket of fixed income and equity mutual funds. We would have complete flexibility to adjust the asset allocation over time. If for some reason you weren’t happy, you could cancel your relationship with me with an e-mail, no surrender charge. We apply a monthly advisory fee to the assets in this plan, which is 1/12 of 0.75%. The fees you pay me are computed and disclosed to you in our monthly report. As your assets rise in value, so does our monthly fee, so no mystery about my incentives.”

Nobody likes to find out that their current adviser isn’t focused on their best interests — that is, a fiduciary. I provide information, let the prospects draw their own conclusion.

We turned to other topics, and I followed up with a formal investment proposal a few days later. I was not surprised that the family decided a few weeks later to move their accounts to my firm, nor was I surprised that the annuity accounts would trickle in only after the surrender charges had expired. Even though the family had concluded that they had received a raw deal from their current adviser, those annuities still were locked in for a few more years.

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David Edwards is president of Heron Financial Group | Wealth Advisors, which works closely with individuals and families to provide investment management and financial planning services. Edwards is a graduate of Hamilton College and holds an MBA in General Management from Darden Graduate School of Business-University of Virginia.

MONEY financial advice

CEO of World’s Largest Mutual Fund Shares His Best Financial Advice

The CEO of the world's largest mutual fund company shares the best financial advice he ever got and reveals his biggest money mistake.

MONEY Financial Planning

The Hazards of Financial Advisers Who Are ‘Just Like Family’

Andrew Olney/Getty Images

Trust should be a byproduct of skill and integrity — not a marketing tool.

We financial planners may know more about our clients than their doctors do. We are often among the first to know when clients’ families are affected by significant life events such as engagements, pregnancies, career successes and setbacks, or serious illnesses.

Does that mean clients should think of their planners as part of the family? According to a recent article by Deborah Nason for CNBC, some planners would like clients to see them in that light.

I was one of the professionals interviewed for the article, which discussed planners providing emotional support for clients and building long-term relationships with them. It also addressed the impact these services have on client retention rates.

My firm’s client-centered services focus on clients’ emotional as well as financial well-being. Still, I was uncomfortable with the tone of part of the piece, especially statements like: “. . . advisors are serving as thinking partners, therapists, surrogate family members and community organizers” and “Some advisors set out intentionally to become part of the client’s extended family.”

Some of my unease came from one essential word that was missing from the article: integrity. My guess is that for the advisers quoted, integrity is such a given that they didn’t think to mention it. Supporting clients’ well-being with services like financial coaching only serves clients well when it is built on a solid platform of professional skill and integrity. The only way to build the trust that is such an essential aspect of comprehensive financial planning is by being trustworthy.

Both clients and planners need to be fully aware — not just at the beginning of their professional relationship, but as they work together over time — of the importance of that essential foundation of integrity and skill. It has to be maintained through transparency and professional safeguards. Otherwise, a “family” relationship could obscure an adviser’s lack of knowledge in a particular area or make it very hard for a client to question advice that may not serve them well.

To take this one step further, it’s wise to remember one of the reasons unscrupulous con artists are able to fleece unwary customers out of millions of dollars. They have honed the ability to manipulate people’s emotions to persuade customers to trust them, and they then abuse that trust.

Also a matter of integrity is the question of whether it’s even appropriate for planners to “set out to become part of the client’s family.” This has the potential to lead to a manipulative and patronizing view of clients.

Serving clients’ best interests in a fiduciary relationship is the opposite of viewing them as customers to be sold a service. Planners who “sell . . . the relationship,” as one adviser quoted by Nason put it, run the risk of putting their agenda and their goal of creating a relationship ahead of the clients’ agenda and goals. There is nothing wrong with wanting clients for life; such long-term relationships can certainly serve clients well. But those relationships are built, not sold.

One of my clients who read the article told me: “I don’t want a planner to set out to ‘become part of my family.’ I want a planner to provide an impeccable level of service and trustworthiness that invites me to start thinking of him or her as ‘family’ — eventually, if that is comfortable for me.”

This, I think, is at the heart of client-centered fiduciary planning. Over time, advisers might become ‘family’ because of their integrity, advocacy, or chemistry, but such close relationships should always originate with the clients. Moving into such a position of trust has to be earned and only comes by invitation.

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Rick Kahler, ChFC, is president of Kahler Financial Group, a fee-only financial planning firm. His work and research regarding the integration of financial planning and psychology has been featured or cited in scores of broadcast media, periodicals and books. He is a co-author of four books on financial planning and therapy. He is a faculty member at Golden Gate University and the former president of the Financial Therapy Association.

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