In my post Not Experts: Financial Advisors. I had a reader ask (in part) the following:
So let me ask you, if you ruled the world, how would you change the system?
My answer (in part) was as follows:
If I ruled the world the world would be in a lot of trouble!
Theoretically, financial advisors would:
1. Not only know what they were talking about intellectually but also be able to implement wealth-building principles in their own lives and have a reasonably solid net worth to show for it.
2. They would act in the client鈥檚 best interests, even if those interests contrasted with theirs. As such, they would be completely trustworthy.
If these two things could be made to happen, I think customers of the financial services industry would be much better off.
Fiduciary Oath
In theory, the second one is covered. From the National Association of Personal Financial Advisors website:
Following the NAPFA Fiduciary Oath means I shall:
* Always act in good faith and with candor.
* Be proactive in disclosing any conflicts of interest that may impact a client.
* Not accept any referral fees or compensation contingent upon the purchase or sale of a financial product.
There’s a lot more to it than that and it’s an impressive statement/goal. My thinking is that it’s a “nice thing to have” but that most financial advisors don’t follow it. Kind of like the way companies post mission statements in their lobbies and never consider them again. Also there’s a lot of gray area in there and room for interpretation.
Anyway, I’ll leave this part alone for this post. I want to focus on part two.
Education Plus Net Worths
Here is part two of what I suggested:
Not only know what they were talking about intellectually but also be able to implement wealth-building principles in their own lives and have a reasonably solid net worth to show for it.
This got me to thinking about financial “experts” — not just advisors but also those in the media, those that write books, those that in any way hold themselves out as experts.
Why don’t they:
- Demonstrate their training/education/knowledge in some way.
- Show how well they’ve done implementing this strategy in their lives.
Wouldn’t knowing this be very helpful?
Sharing Net Worths
Then I took it one step further for #2 above and asked:
Why don’t they publish the net worths of financial “experts”?
Imagine this: at the start of an article, right under the headline and author’s name, you see something like:
“Jeff has amassed a $3.5 million net worth using the principles he teaches.”
You’d think, “Ok, Jeff, I can learn something from you! You know what you’re talking about!”
Conversely, if it read:
“Jeff has amassed a $35,000 net worth using the principles he teaches.”
I’d think, “Uh, Jeff, come back to me when you’ve got an extra million or two.”
Also, if Jeff was 22, I might cut him some slack. If Jeff was 62 and had $35k, then I’d likely ignore him.
Imagine the impact on TV and radio too:
- As they cut to a reporter getting ready to talk about investments, text could come up on the screen saying, “Sara’s current net worth is $75,000.”
- Before a radio commentator comes on the air they could do a disclaimer like they do at the end of car (on the radio) and drug commercials. Something like, “The following host has a current net worth of $50,000.”
It certainly would give you some perspective, wouldn’t it?
An off-shoot of this would be some description of how they earned their money. For instance, there’s a whole host of people who have become wealthy because they created a business of some sort and it exploded, not because they know how to handle money over the long term. If you knew this and the person was talking about how to hit it big developing your own business, you’d have reason to listen. But if they were advising you on basic money principles, you might be a little more skeptical. Maybe not, but worth considering.
Sharing Education and Net Worth
#1 above might even be more enlightening. What if they disclosed educational background with net worth? Consider these options:
- “Jeff has an MBA from Iowa, is a registered CFP, and has amassed a $3.5 million net worth using the principles he teaches.”
- “Sara has a journalism degree from Indiana and her current net worth is $35,000.”
- “Bill studied history in college at Minnesota and has a current net worth of $3.5 million.”
Here’s how I would process that information:
- Jeff seems qualified both from an educational and net worth standpoint. I’d certainly listen to him.
- Sara is an expert, but it’s in journalism, so she probably knows very little about money and is trying to create the illusion of competence. Her net worth isn’t impressive either, so I’d take what she said with a huge grain of salt.
- Bill has no educational background that would indicate he knows anything about managing money. His net worth, however, says he knows a ton about it. I’d listen to him for sure.
So there you have it. My plan for separating the pretend “financial experts” from the real ones. Or at least giving people more information so they can decide whether the source is credible or not.
What do you think? Good idea or bad? What would you change about it?
photo credit: jurvetson Bloomberg interview on robots and space via photopin (license)
Nothing stops an expert from disclosing that… so why don’t they? 馃檪
Also, requiring it is going to be biased. You say “Also, if Jeff was 22, I might cut him some slack. If Jeff was 62 and had $35k, then I鈥檇 likely ignore him.”
Would you? You’d find the 62yo Jeff who had 3.5mm and the 22yo Jeff would never be in the game because he can’t compete. And he never gets to 62 and has to instead work for the 62yo, leverage his system, and there’s not going to be much innovation (at least the opportunity of innovation built into the system).
I think knowing is useful but requiring it, even if it leads to self-selection, creates some of its own issues.
Of course. But I’d be willing to take my chances. 馃槈
I love the way you think. Now if we could only activate this process, the financial world would be turned upside down and, likely, for the better. I am always amazed at the number of educated and intelligent people I work with who insist on listening to a financial advisor. I’m not saying there aren’t good FAs out there, I’m just saying that most of the people I work with day in and day out could easily manage their own money. When I tell them I do, I’m met with blank stares and I’m sure they roll their eyes as they walk away and think I’m just a girl who doesn’t know any better. Haha. At any rate, if I were in a position where I thought I would benefit from a financial advisor, I would love to see their financial landscape before allowing that person to handle my hard-earned money. I think that’s why I fell in love with the FIRE community. Most people here have built real wealth and are kind enough to share some of their secrets. I’d much rather piece this information together and follow IT, as opposed to listening to a stranger who’s potentially in debt up to his (or her) eyeballs.
You make some great points and it’s a great idea. Personally, I hope finance and fitness become things that aren’t taboo to talk about. A person’s net worth should not be a touchy subject.
In my interactions with other people. I’ve been trying to make it a point to talk about deeper subjects. The election had something to do with this; people are waking up!
Case in point.. my roommate is essentially living paycheck to paycheck but works as a financial advisor. He said his emergency fund would last him 1 week. Crazy.
“My roommate is essentially living paycheck to paycheck but works as a financial advisor. He said his emergency fund would last him 1 week.”
YIKES!!!!!!
So what is your plan if your roommate has an emergency and can’t pay for his or her share of rent or utilities after a week?
I love the idea! That’s the way it is in the blogging world with so many personal finance bloggers willing to reveal their net worth AND how they attained it which I think is also an important consideration. Whether anonymous or not, it shows a degree of “been there, done that, it works for me, maybe it’ll work for you too”.
Oh, and I see you have an ax to grind against Indiana… 馃檪
Ha! I just picked three states from the Midwest since that’s where I’m originally from.
I actually went to school in Indiana and have some fond memories there (saw Billy Joel in concert in Indianapolis).
That said, I would not want to move back! 馃槈
Haha I see, that does sound like some found memories!
Interesting idea! Here’s the thing, there is probably a small range sweet spot that would market them well. For example suppose the adviser has a NW of $10M- then why are they still hustling to take you as a client with your modest portfolio. Why are they even working? Some people would want someone who knows what they are doing but is still hungry for business to make you money.
Would you disclose to a prospective employer that you are worth $5M? Many managers would feel that you are too independent and wouldn’t be as committed as someone who needs the job.
Also what about envy issues- people with less may expect you to waive your fees since you have already made it or give them reduced rates.
Just like you wouldn’t list your net worth on your resume or your actual compensation prior to an employer making an offer, there may be some similarities here.
Now they could take the theme and say something like – going from broke to $1M in assets in only 12 years using these principles or something like this and get the key point across.
Those are some counter points to what is a very interesting and perhaps a strong marketing idea.
-Mike
NW: ~$4.25M USD
You are a riot! 馃槈
I agree, at some point the NW gets so high that people think “I could never do that.” I suppose that if the guy saws he started at nothing that helps a bit.
Your net worth is ROCKING!!! You need to retire and come visit me in CO!!!!
Give me a couple of more years. If I ever find that I’m coming out to CO I’ll be sure to look you up. We can do the Incline together- my goal is to complete it in less than one hour which will be challenging but potentially achievable.
-Mike
Dang! Now I want to do the Incline in an hour too!
The only time I’ve done it took me an hour and 30 minutes, but I’m in much better shape now. I’ll let you know if I beat an hour.
A 2000′ per hour ascent rate is pretty respectable. I can climb 1600-1800′ per hour on my mountain bike so I think it will be tough but achievable. Let me know how you do!
First off great rant. I really do believe many so called experts are just journalists with no financial background. Still speaking as a personal finance blogger I don’t feel comfortable revealing my exact financial position other then that I meet a low end of financial independence. Such a need would discourage me from writing and I suspect others as well. So there is a balance. Then again i have readily disclosed my education in finance and economics, So I guess maybe the answer is not necessarily raw numbers but general stage in financial life. I.e. Does it matter that Jeff has 3.5 million or 2 million? No. But it does matter that Jeff has an MBA and has managed to save and earn, which you can state less explicitly if desired.
I personally would be fine with simply “I have amassed over $1 million” — something vague but that still gives the reader a clue what we’re talking about.
I’ve never given mine EXACTLY, but you can get an idea of where I am by reading this post:
https://esimoney.com/the-first-million-is-the-hardest/
Like baseball card stats! Cool idea that could be fun to utilize in other industries as well. Like ‘John is a life coach that’s been married three times and has 3 children, one of which is not estranged.’ ?
Ty, Ty, Ty. I thought ESI was being radical, until I read your idea! Man, the places we could go with this!
The flaw in this logic is that you are just looking at net worth. Perhaps the “financial expert” worth $3.5MM recently inherited the majority of this. what if the journalist with $35,000 recently had cancer and used her life savings on surgery, then a new immuno-oncology therapy that whittled down her assets?
Context is important
True, but in general, a statement of NW is a good indicator of financial knowledge. According to The Millionaire Next Door, inheritance millionaires make up a very, very small percentage of the total as most are first generation millionaires. As for cancer, it would also be a tiny percentage of high NW and then even smaller percentage of financial experts.
I think you can disparage any good idea by using extreme examples. The ones you note happen so seldom to barely make a difference.
I’d rather know the net worths of everyone I’m reading about and am willing to deal with the 0.02% that have issues that could be misleading.
This is much better IMO than not having the net worths of anyone…
I stand by my statement that context is important. I’d rather know how the person’s net worth is related to lifestyle and circumstances than a fixed number.
Absolutely! Be wary of what is being sold.
A corollary to this: TV stock pickers (although, I view them as entertainment only).
Years ago I read Jim Cramer’s autobiography (Confessions of a Street Addict), a great, enjoyable read. One of the things that stuck out to me was that his wife (and business partner) was a good trader and pulled his backside out of the fire on several occasions. he was better at long term investing. And then he started that Mad Money show, which is….. all about trading. But mostly it’s all about branding Jim Cramer, selling him and his books. BUY BUY BUY! Like I said, enjoyable, but not much more than that.
ESI, I recall you writing in another post that you were a credit/budget/finance counselor at church or something. As a counselor, did you ever reveal your own net worth to your clients? Why or why not? Revealing your net worth is sensitive and in the end may or may not help in solving the person’s specific problems anyway. Plus, as you know, when people know your net worth they treat you differently (perhaps you open yourself up to be taken advantage of?) Anyway, maybe it would be better to have some kind of blind verification/certification for FAs and their wealth. Simply advertising net worth to all doesn’t seem feasible.
First, I was talking more about people who write in this posts, i.e. journalists who write about money, so the in-person thing is a moot point.
That said, I’d like it for financial advisors too.
Second, we never disclosed our net worth while giving advice because we didn’t charge anything for our services. I think someone who is paid should be held to a higher standard. Besides, our financial “advice” was pretty much limited to teaching them how to create a budget and live on it.
What you described is one of the reasons I decided to share my details recently (and as you know in the near future). You make an excellent point about transparency, I’ve been tempted often to ask that question when being pitched by a financial advisor. The hard jab to my stomach by my wife usually stops me, since she believes it’s impolite. Ultimately you’re talking about credibility. When I go to the doctor I want to see all the degrees, specialty awards, etc…why not the same expectation from a financial “guru”?
Ironically, I have an undergraduate degree relating to journalism as well, but I won’t take your “Sara” example too personally. I assume you’d be more willing to take financial advice from that theoretical woman if her net worth only $35k but was increasing at a $50k+ / year pace like my negative net worth 馃檪
Ha!
My issue is when they ONLY have a journalism degree and no actual experience managing their own money with success.
Journalism degrees with financial success are fine. 馃槈
Two comments:
First, I would be wary of a financial advisor who said he had a $3 MM plus net worth and had NOT taken the fiduciary oath. Why? Because I would wonder if they made their $3 MM by selling high-commission products that his/her clients didn’t need through superb selling skills.
Second, I WOULD hire a financial advisor who said: Mr/Ms X, using these principles, has amassed a net worth of $500,000, has no debt, and has given over $2 MM to various ministries in support of spreading the Gospel and showing mercy to those less fortunate. I haven’t run into one of those yet. . .
This is a great point! I totally agree with you that publishing net worth (along with age) would help to recognize the validity of arguments of individual financial advisors or experts.
Another similar illusory aspect when declaring net worth is that majority of people in marriage (financial bloggers included, even Mr. Money Mustache does it!) disclosure their net worth as combination of their individual net worth, even though majority (53 % in the USA according to 2011 census data) of marriages end up in divorce. It is thus not logical to declare net worth that way.
ESI, I love creative thinking, and this one’s up there.
While personally I love the idea, I think the problem would come from the 90% of the population that doesn’t understand this stuff. I fear unintentional consequences would outweigh the benefit (e.g., I’m a crook, and I’m going to target high net worth folks for identify theft, kidnapping, maybe even just stealing their mail!).
You never know how folks think, but I fear that the “darker elements” of society would take this to a place that none of us want to go. Sad, but a potential risk.
I really enjoyed this post. I am an advisor and willing to share my net worth with a prospect (why not we ask that our prospects and clients share everything with us), but I would not be willing to share my net worth on my podcast or a blog post. I have friends, neighbors, and family that listen and that could lead to some uncomfortable conversations (living in stealth mode is a blessing and the basic premise of The Millionaire Next Door).
I completely agree that a good advisor should as Warren says, “eat what they cook”. If you ask your clients to save 15-25% then a good advisor should walk the walk too.
Have to admit I love this idea. I often wonder about the financial situations of “experts”. Are they walking the walk-or just talking the talk?
As an example, I have a friend who’s made a career as a mortgage broker or consultant (not clear which one). He seems to be well liked and helps people get into the homes they want to buy. He also lives rent-free with family, and the only home he ever bought was foreclosed on. Would you want to take his advice about mortgages? I wouldn’t, but his clients don’t know this about him.
That’s the kind of thing I want to know about people giving me advice-are they just parroting what they think you “should” do? Do they have real experience in the subject area-either life experience or educational experience (or both)? Or are they just spouting off things with no real expertise or knowledge? I’d love to see this idea in action-at least with “ranges” of net worth if not exact numbers.
Hi ESI,
This is a very interesting concept. I have asked myself a similar question – if someone is so smart, how come they are not rich? However, even a great scorecard may have limitations.
My thoughts are that someone who is good at marketing themselves may end up with a high net worth, even if they are selling questionable products. I am thinking in the lines of RDPD, and articles that discuss how Kiyosaki’s money came from selling books, not their investing acumen.
On the other hand, someone who charges a flat fee to advise clients may offer very valuable services, but would only have a much lower net worth than the RDPD author.
I would be interested in knowing how experts actually allocate their money. Isn’t it great to see people who have their money where their mouth is? I read a financial expert once, who routinely talked about those who were afraid of the stock market. Yet they once disclosed had something like 1/4 to 1/3 of assets in cash or cash equivalents. And they were in late 20s/early 30s. I was shocked by this information.
Alternatively, there is a perma-bear who has been forecasting the end of the world for decades. And I didn’t think about them in the most positive terms. However, I realized that they have a portfolio that is much less extreme than their views ( they owned stocks, real estate, bonds and gold). I would have thought that he is all in gold.
I don’t know, this seems to have drifted into the land of distortions and dreams. There is most obviously a security issue for daily professionals encountering the general public and a netherworld that never sleeps. What financial bloggers prefer to do should not be conflated with other business practices, or likewise, wealth with virtue . . . when it comes to how anyone ‘got there,’ talk about a river. And people often lie, no matter what they say; imagine parsing that with great accuracy. Then a world in which we endlessly hector others over the finer details, forever questioning their credentials? Society would fold in months, if not weeks or days (lol) . . . the balance of the world is held together by a great number of lies and boundless optimism. Knowing this, I use horse sense instead, occasionally paying only those who seem legitimate and demonstrate real helpfulness. Beyond that, and all points prior, DIY–there’s the real ticket.