Rob Carrick wrote an article over the weekend asking for his readers to consider visiting this site and to provide feedback on the KYA (Know Your Advisor) tool. On the blog, there were some very constructive suggestions and I received some private emails as well which were great. I’ll post some here and provide my responses for all to see. I want to thank everyone for the feedback. I think there are some who believe it is a finished tool – it is not – and every question is subject to modification or removal and I might add other questions.
1. I had an advisor email me to offer kudos, and he and his team intend to use and promote the tool. He suggested that the question about sales contests is a tough one because there are many advisors who work at a dealership who philosophically don’t participate in contests but just happen to keep on doing their business and may end up winning things, or different areas of the firm have contests but they specifically don’t pertain to the advisors division, etc.
My response: I thought about this long and hard. I think I will remove the question because sales contests are not the reason any advisor chooses to use one dealership over another. There are so many things to consider when choosing who to run your practice through, and I’ve never met an advisor who has said “I’m going to XYZ Financial because they have the best BBQs”. The decisions to join a dealership are based on many other criteria (technology platform, product platform, etc.). It’s possible that the dealership that is the best fit for an advisor might hold contests, and they might not. But because it is not a decision factor, it would be hard to penalize an advisor for something they don’t have much control over. Further, sales and incentives are as ubiquitous in the financial services as much as with many other industries – perhaps consumers in general just need to be aware that many behaviours in many workplaces have incentives of some shape or form.
2. Advisor Compensation – Advisors who are compensated using load funds is a broad stroke: Some advisors use Front loaded funds and opt to choose 0% up front and collect an annual trailing commission as their main source of income, and some do that because they cannot offer fee-based accounts. Also, some advisors fall into a blend of categories – for example a bank branch advisor will most likely earn a base salary with a bonus based on performance.
My response: I’ve changed the question to simply ask if the advisor will speak openly about fees charged for their preferred method of compensation and if they will discuss all the options available to investors. Better to let the advisors do the talking as to which they prefer and why. I think it’s important for an investor to determine if they are getting good value for what they pay and hopefully they will interview more than one advisor to get different perspectives. Discussing all the nuances in the scorecard would be time consuming – and there are many references available on advisor compensation elsewhere. Part of the appeal of this scorecard is to help quickly identify bad apples, not tell you who you should work with.
3. Options licensing question: a few advisors mentioned that the use of options isn’t a cut and dry question, as some investors cannot understand them.
My response: I’ve omitted the question as I agree: many investors who use an advisor don’t really understand options (unfortunately) and I’ll leave it to the individual advisors who are option licensed and use it in their practice to promote the benefits of options as part of their own value add, for differentiating themselves from the competition.
4. Award some points for undergraduate or graduate degrees in finance or accounting.
My response: yep, I just missed doing that the first time ’round. Now I feel validated for asking for feedback even more! I *knew* I’d miss a simple one on the first go at it.
5. Award some points for goal setting in the financial planning process.
My response: agreed – I added in a question to ask the advisor if they will dedicate time to discussing goal setting for various areas: retirement, education funding, lump sum expenditures, etc.
6. Award some points for experience in the industry.
My response: done.
7. Award some points for the drive and passion of the advisor.
My response: Can’t – too subjective. Most advisors are by nature, quite driven. True passion is rare and I think you’ll probably detect it when you see it.
Other Comments Worth Mentioning
1. You have a conflict of interest – you work for a mutual fund company.
Yes, I work for Pro-Financial Asset Management which manages a suite of Fundamental Index Mutual Funds. Nothing I do on this blog is reflective of the views of my employer. Two questions in the scorecard pertain to indexing and by their nature, the questions seem to promote indexation. 40 years and 1000′s of academic papers support the inclusion of indexation strategies in many portfolios. The quiz doesn’t say you should go out and ask your advisor about “our” funds, nor does it penalize an advisor for NOT using index funds in any way.
If you are worried about how objective or sincere I can be, please feel free to read the 750 other posts on this blog and you’ll figure it out. I suppose I could just TELL you I think I’m being objective, but why would anyone take that at face value?
2. You’re in the industry, you set it up so that you would’ve scored 100%
I would’ve scored 80% on the first draft and 85% on the second – but I am not a financial advisor anymore, nor do I have any current plans to become one again. Besides, as I’ve made clear (hopefully) this scorecard is not a tool that will unequivocally tell you who to pick as your advisor, it would only be used to aide you in your overall decision making process.
Okay, so we’re getting closer to the final draft. Take a look at the updates (they are the same quiz, just in different formats: one online and one that can be printed out):
Interested in your feedback on the changes, or if you’ve come up with anything else that should be addressed. Cheers!