Take Biases and Backgrounds into Account When Seeking a Financial Adviser

Selecting a financial adviser to work with is a big decision. As such, when you start the process of selecting an adviser, you need to check their background, experience, education and credentials, and ask important questions, such as whether they are held to a fiduciary standard. But that’s just the surface stuff: You need to dig deeper. Get a little more personal.

During your search, you need to realize that advisers may have built-in biases that you shouldn’t overlook. With all the research you do on potential advisers and the questions you ask, how often do you ask them to tell you “their story”? It’s something that, frankly, too many investors overlook.

Advisers may bring their biases to the table as they meet with customers and when they offer financial advice. Their stories, their family upbringing and background, their education, their work experience and how and why they entered the business could play a critical role in shaping the advice you may receive from them in the future.

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As much as we don’t often want to admit it, all of us advisers have built-in biases, even if we follow a fiduciary standard for our clients. Simply put, biases and life experiences have a tendency to shape how advisers invest their clients’ money. Knowing what those biases and experiences are can help you determine which adviser may be right for your retirement planning and which ones will not be a good fit.

My own story: A start in insurance

All advisers have their own stories. Here’s mine. I entered the industry through the insurance channel and spent my first five years as a career agent of a large insurance company. The training I received over those five years skewed my thinking, making me believe everyone entering retirement should follow “safe and guarantee” tactics so their principal would be protected against market volatility.

My training built in the bias that safety and guarantees were more important than growth. And for some, that may be the case, but it isn’t true for every person.

My background, my experiences and my training all play into the recommendations I make for clients. I try to stress to potential clients how important all of this is to the decisions I make. I’m also upfront in telling potential clients that the biases I carry with me might impact how I invest their funds. It’s why I begin all meetings with prospects and referrals by letting them know my story and my built-in biases. As a fiduciary adviser, my story and the biases I bring to the table are just as important as my training, education and length of service.

The other side of the coin: A stock-world bias

Other advisers have different biases. One I know entered the industry through the Wirehouse channel (a brokerage firm with multiple branches). As such, he was trained to believe all consumers should stay invested with their assets and that being “more conservative” with funds when entering retirement meant reallocating from equities to a fixed income. This bias was built in by his training.

Besides professional training biases, customers also need to look at the family life of an adviser as they seek to understand the biases brought to the table. An adviser who had a more “privileged” lifestyle, be it upper middle class or wealthy, may look at money differently from an adviser who grew up in a blue-collar or lower-middle to middle-class environment.

Knowledge is power

I am not suggesting that one background is better than another. However, knowing your potential advisers’ stories and how they impact their decisions can go a long way in helping you determine whether they and their firms are a good fit for you and your family.

As you look for a financial adviser to help you prepare for retirement, at the very least, you should ask the candidates questions about their backgrounds and biases. While often overlooked, asking these questions and understanding how an adviser operates can be one of the most important elements in helping you determine who is going to invest your money.

Kevin Derby contributed to this article.