Where to Start
Big decisions can be overwhelming.
One of the most challenging parts is figuring out where to start.
I appreciate adages like, “There is only one way to eat an elephant: one bite at a time.” Sometimes, you need the encouragement that even the largest tasks can be achieved by starting to chip away, bit by bit.
Now, when it comes to a big decision related to a crucial topic (family, health, money, education, etc.), there is definitely some added stress. To help navigate through that stress, it is always helpful to have a process for assessing your options.
I love options. I use the term “optionality” quite often, and I encourage clients to make decisions that allow for optionality. Why? Because circumstances and variables change, the ability to pivot and choose another option is both valuable and powerful.
School of Choice
Here’s an easy example. A few years ago, my wife and I had to decide where we were going to send our eldest child to elementary school. We vetted out three preschools, which was a process of its own, but elementary school seemed like a bigger decision as this would probably be the trajectory of where he’d attend school over the next handful of years and where his siblings would go.
So, private, public, or charter? Is it local or something we’d commute to? What takes priority—faith-based or education-based? The list of questions goes on and on. Asking these questions in isolation without giving more weight to some versus others made it very difficult to organize my thoughts and opinions.
We needed a process.
Now, I will spare you all the boring details, but the rubric for this decision looked something like this (in no particular order):
Proximity
Familiarity
Community
Reputation
Cost
Quality of Education
This framework was quite helpful. It allowed us to assess the options and narrow down our decisions, turning a question that felt a bit overwhelming into something that was answerable.
Advisor of Choice
I recently used the same concept—creating a list of categories for ranking and assessing a decision—to help someone who was shopping for a new advisor. Here are the areas of focus I narrowed down: Advice, Custodian, Strategy, and Plan. This list is not exhaustive nor perfect, but it did help to bring clarity to a decision that had the potential to feel a bit overwhelming.
Let’s dive into each category and pull on this thread a bit.
Advice
If you are on the hunt to hire an advisor, one of the most important parts of your assessment will be regarding who (the person) is who is actually giving you advice. You want to make sure this person is trustworthy, competent, and someone you enjoy engaging with. If any of these three are missing, then you should opt-out immediately.
Trust and enjoyability (or likeability) are a must – there is no substitute or compromise here. Regarding competence, I would simply throttle your expectations a bit here – you need someone well versed in the language of finance, someone who reflects confidence in the subject matter, but you don’t need/want a jack of all trades.
In the ideal world, you want the actual advisor to be the “tip of the iceberg,” meaning that underneath that relationship, there are other subject matter experts that step in and guide on matters such as tax strategies, estate planning, or social security, or any other planning specific matter. Ultimately, you are looking for a team, not a person – in this day and age, a sole practitioner simply won’t be your best option.
Custodian
The custodian refers to the company that actually holds your investments. One of your shopping requirements should be to work with a fiduciary, which means that your custodian and advice-giver will not be tethered to the same company. That separation removes conflicts of interest and creates an ideal ecosystem for you to receive untainted advice.
So, what’s important when it comes to a custodian? Security, service, cost, and security. Did I say security twice? Yes, it matters that much, especially in this day and age. Bigger isn’t always better, but when it comes to a custodian, bigger does matter. You want a custodian with staying power and the available resources to invest back into their security and service.
On a day-to-day basis, we deal with two primary custodians when serving clients. The sheer manpower of these organizations and the breadth of departments available to serve our clients are valuable resources. An added bonus is that they are fierce competitors with one another, which has led to cost efficiency that yields a remarkable benefit to the consumer.
Yet, with all of this said, I still encounter investors using Podunk custodians who pay unreasonable costs and/or find themselves stuck without being able to contact anyone for their service needs. I’ve got some horror stories I could share, but perhaps not enough time right now.
Strategy
If the advice-giver seems to be the right match and the custodian is appropriate, then you are going to dive a bit deeper to understand the strategy. How will your money actually be invested, and what’s the overarching philosophy behind this strategy? These are two very important questions to ask and understand.
Ideally, you want the philosophy/strategy to be something you can understand at a basic level. Something you could easily regurgitate to a friend at coffee and not sound crazy or ignorant. You do not need to understand all of the nuances nor be able to teach a college-level course on the subject, but you do need to understand. The strategy should be logical; it shouldn’t take a wild imagination or require blind faith.
Also, perhaps this could go without saying, but the strategy shouldn’t look and feel too good to be true. Getting rich quick doesn’t work, so just avoid pursuing anything that looks like such. Heed the wisdom of the Oracle of Omaha:
Jeff Bezos: You’re the second richest guy in the world, and it’s so simple. Why doesn’t everyone just copy you?
Warren Buffett: Because nobody wants to get rich slowly.
Plan
You should not be hiring a money manager. You need more than that. Yes, the investment strategy is important, but it isn’t everything. The investment strategy is one crucial piece of the puzzle, but it is subordinated to the financial plan. You don’t want a “this or that” advisor; you need a “this and that” advisor—someone who will deliver top-notch investment management AND top-notch financial planning services.
Yes, the investment management piece of the equation is much more interesting, hence the reason it gets so much more airtime, but investment management has one sole purpose—to serve the financial plan. The plan must exist first, and it deserves the care, time, and investment from a true craftsman—someone who will care about the nuance and deliver a well-polished plan that is equipped to adjust and pivot as life throws its curveballs.
You want advice on taxes, estate planning, insurance (home, health, auto, life, disability, long term care, etc.), social security, medicare, mortgage, education savings, charitable, etc. etc. etc. If it has a dollar sign in front of it, you want guidance on it. Financial planning should be a “cheat word,” a catch-all of sorts that captures a wide breadth of financial planning matters that you should expect and receive.
The Big Rocks
No assessment or analysis will ever be fully exhaustive. There is a diminishing return of sorts, and some call it paralysis by analysis. What I laid out today is a good framework for walking you through this important decision of who to hire for advice.
Stephen Covey, author of The Seven Habits of Highly Effective People, popularized the “Big Rocks” theory. The idea is to fill a jar with big rocks first – the important stuff – and then pour in the sand. If this order of operations gets jumbled (sand before rocks), not everything will fit. The categories I laid out (Advice, Custodian, Strategy, and Plan) are those big rocks.
So, whether you are choosing the right education for your kiddo or shopping for a financial advisor, it is prudent to slow down and set up a process for making the decision. Stress is no fun; I know this. Don’t try to swallow that elephant whole; approach each big decision one bite at a time.
Trevor Cummings
PWA Group Director, Partner
tcummings@thebahnsengroup.com
Blaine Carver
Private Wealth Advisor
bcarver@thebahnsengroup.com
