Busting Your Myths and Misconceptions about Financial Advising

It’s one thing for the general public to misunderstand what financial advisors do or be mistaken about important principles of personal finance. But what about financial advisors? What myths and misconceptions do you believe that might be holding you back from giving your clients the best advice? That’s what today’s guest is here to talk about.

John De Goey is a Portfolio Manager with Wellington-Altus Private Wealth. He has built a national reputation as a trusted authority on professional, transparent and evidence-based financial advice. He’s written for publications including Canadian MoneySaver, MoneySense and The Globe and Mail, and appeared on television programs like CBC’s MarketPlace, News World and BNN’s Market Call. He’s the author of The Professional Financial Advisor, now in its fourth edition, and STANDUP to the Financial Services Industry, released last year.

In today’s episode, he’ll discuss misconceptions commonly held by financial advisors, why advisors might hold these misconceptions, and what you should believe instead. Listen in to hear more about John’s work, research and advice for advisors and investors.

What You’ll Learn in This Episode:

  • The unglamorous yet insightful reason behind John becoming an advisor (3:35)
  • Common myths and misconceptions in financial advising (5:00)
  • What advisors get wrong about cost (9:15)
  • Why advisors ignore the evidence and recommend activities that don’t add value (18:20)
  • The key beliefs advisors should focus on improving (26:35)
  • Why investors will need to be part of the solution (21:55)
  • Why the reason for advisors’ beliefs isn’t the most important question to explore (38:20)

Links and Resources: 

Standup Advisors

STANDUP to the Financial Services Industry: Protecting Yourself From Well-Intended But Oblivious Advisors

Email John

Quotes by John De Goey:

“There are a lot of advisors that should be part of the solution, want to be part of the solution, but the really ugly secret that a lot of people in the industry don’t want to come to terms with is that there are many advisors that are themselves part of the problem.” 

“Any advisor who is worth his or her salt would do very well to understand that where the rubber hits the road is in the behaviour that they help to enforce or disabuse their clients of.”

“This is perhaps the only industry in the world that I’ve ever found where the low-cost products are the best products.”

We’re so thrilled that for the fiftieth episode of Growing Your Financial Advisory Practice Podcast, John De Gooey is back on the show to celebrate with us. If you missed his first episode, it was all about determining the key assumptions you should use when developing financial projections. Today, we’re looking at the opposite topic: John is here to bust the myths and misconceptions you may have as a financial advisor — myths that could be holding you, and your clients, back.

Below, we’re sharing three key ideas from this episode:

  • What advisors get wrong about cost
  • Why investors will need to be part of the solution
  • The key beliefs advisors should focus on improving

For the rest of the episode, find the podcast on iTunes or Stitcher, or hit the link above.

What advisors get wrong about cost

A lot of advisors tend to act like the cost of products is immaterial. But in fact, cost makes up a full half of the value proposition, the other half being the benefit. When you change the cost of a product, you actually change its value.

Cost is also one of the most reliable determiners of a product’s performance — it’s inversely correlated to product’s performance. Consistently, lower-cost products perform the best over time. But many advisors either don’t realize this or ignore this fact.

This might be because with most things in life, you get what you pay for. A good quality suit or vehicle, over time, deliver far more value than a cheap version.

But when it comes to investing, as Vanguard founder John Bogle used to say, “you get what you don’t pay for.” The more a product costs, the more it eats into your return and the lower your return is expected to be. So, in what might be the only exception in the world, the low-cost products are actually the highest quality products.

This fact is more relevant than ever — in a world economy in which returns are significantly lower than they used to be even just 30 years ago, this information becomes all the more important to apply.

Why investors will need to be part of the solution

For most of his career, John focused on other advisors, working to get them to challenge their assumptions and rethink the advice they give. The whole time, even through releasing four editions of his book, The Professional Financial Advisor, he’s felt ignored and overlooked inside of his industry.

Now, he’s turned his attention to investors. His newest book, STANDUP to the Financial Services Industry is written for clients, and he wants to show them how their advisor may be part of the problem.

While he’s careful to clarify that advisors’ intentions are generally very good — most people don’t go to work every day with the desire to hurt people — the results of poor financial advice can be harmful.

What investors need to do

John encourages investors to take the following three steps in ensuring their advisor is using evidence-based practices in their advising:

  1. Summon up the courage to ask their advisors tough questions (as Canadians, we know this isn’t always easy).
  2. Ask the right questions — John has included a number of questions that he recommends people ask right in his book.
  3. Discern and call out if the answer isn’t evidence-based. John includes some of the best pieces of research on his website for investors to find and use in conversations with their advisors.

There are two things keeping investors from holding their advisors accountable: not having the tools and knowledge to do so, and being too accepting of unsatisfying answers. John’s helping cover the first piece — the latter is up to each individual to combat on their own.

The key beliefs advisors should focus on improving

If there’s one area John wants advisors to focus on, it’s beliefs around behavioural economics and behavioural finance.

More and more, the emerging evidence reveals that investor behaviour is probably the most important factor of financial wellbeing, yet most advisors don’t pay much attention to it, seeing their role too firmly in the investment side of things.

John explains it like this: “When you ask a typical advisor what he or she does for a living, many of them will say, ‘Well I recommend products and I help my clients save taxes,’ and whatever. But some of the more enlightened ones will go a little bit further and say ‘I help my clients by engaging in behavioural coaching.’”

If you can help clients invest in the right registered account or save just $100 more every month, you can have a major impact on their life.

Hint: This sometimes means disappointing your client by correcting their misguided beliefs: rather than just facilitating what it is they want, challenge their assumptions and give them advice about what will actually help them in the long term.

Correcting the implementation gap

One major part of investor behaviour that you should be focusing on is implementing the plan that you put together. You spend so much time and effort doing the proper diagnostics, suggesting great solutions, and coming up with the perfect plan, but none of that helps the client if they don’t actually put anything into action.

A plan that doesn’t get updated or used isn’t worth anything. So along with actually updating plans on an ongoing basis, helping clients implement solutions should be a major focus of financial advising.

To hear more of John’s advice, listen to the full episode where he explores various financial advising myths in depth, speculates as to why advisors hold these beliefs — and explains why that’s actually the wrong question altogether. You can find the show right here on this page or subscribe on iTunes or Stitcher so you don’t miss any episodes. 

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