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Encouraging a 20-something friend at my gym to attend a workshop I was giving on investing and financial planning, I quipped, “I’ll teach you how to be a millionaire.”
“Really?” she responded.
I quickly explained that, if someone her age invested $6,000 a year in stocks for the next seven years and then stopped, there would be a reasonable historical probability she would have $1 million at age 65. (This assumes a historical return of 8% on stocks, which may not happen in the future).
I didn’t anticipate her next question, “Are you a millionaire?”
Financial professionals like me think nothing of asking clients about their earnings and net worth. Occasionally the question of disclosing our own net worth comes up in conversations among my peers. Many advisors think their net worth is none of their clients’ business. Others think it’s a fair question. However, they express concern that a single number like net worth only presents a glimpse of a larger picture, and by itself is incomplete information and can even be misleading.
Having a net worth of, say, five or 10 million dollars doesn’t make someone a trustworthy or capable financial planner. It reveals nothing about their money skills or knowledge of financial planning. The money may have come from another business, an inheritance, commissions on financial product sales, or even illegal behavior. In addition, many highly capable young planners have not yet accumulated a high net worth.
My hunch is that my friend’s question had a deeper intention. I suspect she was asking if I actually followed my own advice, because if I had, I would be a millionaire. That is a fair question. A planner who fails to follow their own advice is hardly going to inspire confidence in prospective clients.
Another reason for asking about a planner’s net worth may be concern about the advisor’s financial stability and the likelihood of their services being available to the client in the long term.
Someone may also want to know if the planner is familiar with a potential client’s particular financial issues. Clients with high net worth need to know a planner can relate to the complexities, responsibilities, and emotional challenges of managing wealth. Clients with lesser net worth need to know a planner will pay appropriate attention to their accounts.
These questions are all legitimate concerns, which are not addressed by knowing a financial planner’s net worth. To discover whether a planner is a good fit for you, it would be more useful to broaden your query by asking the following:
- Can you give me some examples of how you follow the advice you give clients?
- Do you have an emergency fund to cover six months’ living expenses?
- Is your money invested in the same way you will invest mine?
- If I ran a credit report on you, what would it tell me?
- Have you made financial mistakes? What have you learned from them?
- Does your company have a succession plan and an emergency plan?
- How can you relate to someone with my net worth and financial concerns?
These are all legitimate questions that, while you may hesitate to ask, are important and reasonable for you to know. If a planner avoids answering or seems offended by these questions, that may be a red flag. If a planner is comfortable and open in their answers, you may have found someone who provides exceptional service. Planners who share some of their own financial information are clearly committed to building the trust that is so essential between planner and client.
And how did I respond to my friend? Very simply, “Yes, I have saved over a million dollars.”
Rick Kahler, MS, CFP®, CFT-I™, CeFT®, CCIM, is founder of Kahler Financial Group, a Rapid City, SD-based fee-only Registered Investment Advisor.
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Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
