In the modern age of financial practice, securities salespeople no longer call themselves brokers or registered representatives. They now go by names like financial consultant or investment specialist. Many advisors continue to charge commissions and work in a mainly transaction-based model, but many have also converted to a fee-based practice, charging management fees to oversee client assets.
Most financial advisors work for one of the major brokerage firms, banks, or insurance companies. There is also a relatively small but growing contingent of independent advisors who are not affiliated with any outside financial entity. Most of these advisors are either solo practitioners or small partnerships of advisors working together. There are, of course, many medium- to large-sized independent money management firms, but these firms typically work with institutional investors such as pension and endowments funds rather than individuals.
Despite the growth of advisors adopting a fee-based model, many are still acting like brokers or facilitators instead of client-focused, trusted advisors. Filling orders, following instructions, and saying what the clients want to hear-the main activities of a order-taker or facilitator-may seem like a good business model, but it is probably not serving the best interests of clients.
Trusted advisors are client advocates. They are not afraid to follow the courage of their conviction, think rationally, and maintain their discipline, even in the worst of times. These advisors have a clearly stated and sound philosophy about investments and financial planning. They set expectations, educate their clients, and work in a collaborative fashion-always putting their clients' interests first.
Here are some differences between facilitators and a trusted advisors:
Courage of conviction-Trusted advisors carefully evaluate a client's situation and make recommendations that are in the best interests of the client, even if the client initially disagrees or wants to do something different. Trusted advisors understand that the most prudent course of action is not always the easiest one to take. This is especially true with money and markets, where emotions can run high, often causing poor decisions to be made. It is important to take the time to explain the pros and cons of various strategies, and help a client understand which approach would be best for them.
In contrast, a facilitator may allow or even encourage a client to make decisions that might feel good in the short run but are counterproductive long-term. They might do this out of fear of losing business or a preference for expediency. Facilitators generally do not bring discipline and rationality to the investment process, which is a big part of the value of having an advisor. This is unfortunate because in emotional times clients can benefit from hearing a rational and independent voice of reason.
Stated investment philosophy-Trusted advisors have a clear and unwavering approach to investments and financial planning. They take the time to educate their clients about their approach and are willing to turn away prospective clients that are not a good fit. Trusted advisors have the flexibility to use any product or vehicle they feel is appropriate, but they use them in a way that is consistent with their investment beliefs. Above all, they do not adopt a approach they believe is not in the client's interest simply because the client wants it.
Facilitators, on the other hand, usually don't have a clearly stated investment philosophy. They want the flexibility of being able to offer a prospective client whatever investment approach the client is looking for. Facilitators might offer several different investment solutions, even if they are philosophically inconsistent with each other. As a result, they may have clients following conflicting strategies, which makes it impossible to send a consistent message to clients.
Coaching and Educating-Trusted advisors act as financial coaches for their clients. Whether it is in sports or business, the role of a coach is the same. A coach is an educator and teacher who understands the objectives and defines and implements a process to achieve them. He or she also communicates collaboratively in a team-building fashion, and provides the discipline to ensure good, long-term results.
Education is also critical to a successful advisor-client relationship. Clients benefit from learning about economics, finance, and how markets work. A trusted advisor is able to facilitate substantive discussions about these and other important topics. Clients make smarter decisions when they have useful and informative information.
Facilitators often lack the skills needed to truly educate and advise their clients, and must fall back on other means, such as persuasive sales skills, to retain client relationships. They may not be willing to spend the time, or simply may not have the knowledge, to properly educate and inform their clients. A good advisor has a high level of expertise, as well as the skills necessary to impart that knowledge to others in an effective way.