The Most Important Question To Ask Your Financial Advisor

by Benjamin Beck, CFP® Benjamin Beck, CFP® | January 31, 2023

If you’ve known us for a while, you’ll know that the question “Why?” is in Beck Bode’s DNA. It’s what makes us tick. I would say, it’s what makes us tick quite a bit differently than most other financial advisors. I can’t stress enough the importance of asking “why?” – in every arena of your life, but especially when it comes to your personal finances. Because things are not always as they appear. 


The Problem With Selecting A Financial Advisor Solely Based On A Referral

Like many professionals in our field, our practice grows largely through word of mouth. We are certainly grateful when satisfied clients choose to tell their friends, family, and colleagues about their experience with us. And even though the majority of new clients come to us by way of referral, it nonetheless shocks me that people are willing, often blindly, to entrust their finances to a complete stranger simply based on the endorsement of a friend. Now, don’t get me wrong, we love to help everyone who understands and shares our philosophy. That’s the point: we want our clients to understand what we do and how we do it, and to do that they must ask “why?”

A long time ago, I used to work alongside an advisor who was rumored to have celebrity clients, including movie stars and highly successful athletes. Big marquee names you’d recognize instantly. Years later, after I had left that large firm and opened my own practice, I happened to read on a major news website that this advisor had been convicted of defrauding clients of a lot of money, and was on the way to jail. It wasn’t on the scale of a Bernie Madoff, but that doesn’t lessen the infraction. Someone well respected, by all accounts “successful,” who had appeared to be a decent person, had committed a serious crime. How could this have happened? This person had created a fairly plausible back-story to sell a non-existent investment vehicle to longstanding clients and not a single person had thought to verify it. The clients had simply taken the word of the advisor at face value and bought into the scheme.

If you’re in the market for a financial advisor, it really is incredibly important to understand the process that is being presented to you. No, it’s not your job to be a financial expert. But you do have the right to ask:  “Explain to me the process that we're going through so that I understand exactly what you're doing with my money and why.” In fact, not only do you have the right to ask, you owe it to yourself to ask this question. This should not be a request, but rather a mandate. 


Start With “Why” 

I’ve thought hard about why it is that people don’t ask ‘why?” In our industry, so much of business is based on relationships. People do business with you because you cultivate strong relationships, and referrals are simply an extension of those positive relationships. 

Allow me to illustrate with a short example. Let’s say Mr. and Mrs. Jones contact us about investing their money. Their best friends (who happen to be wealthy, and whom the Joneses admire) have said, "Oh, Ben and Jim have done a fantastic job with our money, you should talk to them about managing your money." So the Joneses reach out to us, and we have an initial conversation to get to know each other a little bit. Maybe they don’t follow the markets that closely or don't have an interest in the economy. 

They don’t quite understand everything we are saying to them, but they think it would be too rude to ask. Or they don’t want to look like they don't “get it,” or they want to be “smart clients” or they want to “not make a fuss” – whatever it is. Perhaps they just find the subject matter too complex or boring, and they tune us out a bit. On the way home they confer with each other, and they agree that if their best friend vouched for Beck Bode, then that’s got to count for something, right? The next thing you know, they are ready to move their investments to us, even though they don’t really understand how it all works. 

People actually stress out about not being “good clients.” Beyond the fact that the Joneses want to be ‘model clients,’ we have to acknowledge that a lot of emotions are at stake. Money is a highly emotional topic. Their relationship with their best friends is at stake, too. Many of us are hardwired to make others happy, and if someone says “try this,” and you don’t, you may feel like you’re letting them down, or that you don’t value their recommendation. You see how complicated this whole story became in just a few moves? Exactly. 


Understand Your Financial Advisor's Investment Strategy

I can’t say that I have not been in the same boat as the Joneses. Years ago, there were definitely instances where I had nodded along in a conversation, even if I didn’t completely understand a concept. I may have thought to myself, “I should understand what he’s talking about, but I’m not going to interrupt.” Not anymore. These days, I force myself to stop others when I can’t follow. I know how damaging it can be to not ask in any part of life, especially when it comes to finance. When I don’t understand something, I look at it as an opportunity to learn something. I’ve come to the conclusion that the only thing standing between me and learning is the courage to stop somebody and ask a question

Finance is a complex topic, and it’s intimidating to venture into those waters. When it comes to talking about money, people suddenly become timid. I’m not a “car guy.” I don’t understand all the inner workings of an automobile.  But if I’m driving along and something starts to sound or act funny, I'm not just going to keep driving. I'm going to pull over and consult with someone before I do damage to the vehicle, and more importantly before I put my family and myself in any potential danger.

Can you apply that same methodology to your financial assets? I’m not suggesting that your financial advisor is doing anything illicit or untoward, but if you don’t ask the question about why they invest your funds the way they do, then you’ll never know if what they are doing is right for you. As investors, we need to get out of our own way, set aside our insecurities, and take the extra steps to understand: "How is this going to help me reach my objectives?" and most importantly, "What are the risks here?" Then, 5, 10, or 15 years from now we can point back and say, “Well, this happened but it was a risk we knew about from the beginning,” or “It was a known risk, and it didn’t come to bear.”  Either way, you’ll look back and be glad you asked why.

Learn more about Beck Bode's investment strategy.

Ben Beck is Managing Partner & Chief Investment Officer at Beck Bode, a deliberately different wealth management firm with a deliberately different view on investing, business and life.

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