Is your financial adviser a hypocrite?

Is your financial adviser a hypocrite?

Is your financial adviser a hypocrite?

As a person who considers himself to be a “finance professional” I find myself frequently apalled/disgusted/disappointed that so few of my industry peers actually follow their own advice. It’s like part of the training to be an accountant/financial planner/banker is to forget the meaning of the words “hypocrite” and “irony” and instead learn how to be a salesman. And while this is bad enough, what makes it worse is that clients never actually click on to the fact that their adviser is a total hypocrite and has no experience in actually doing (as distinct from watching someone else do) the things that they are recommending that you do.

While there may not be a lot that I can do to change my peers, I can at least give you some idea of the poor financial situation of some finance “professionals” I have come across and how you might be able to be spot a fraudster when you see one.

1) The big 4 bank chief economist

One of the big 4 banks in Australia would send their chief economist to our city every year to give an update to locals on the economy and any insights they might be able to provide using their skills and experience. While this particular chief economist was actually quite a good speaker (in front of an audience of abut 400 people), he was found out in a big way in question time when someone asked him what he was currently investing in.

I could see him hesitate at first before he decided that honesty was the best course of action, after which he advised that as a household with debt he was more focussed on paying down his home loan than investing. While I shouldn’t have been surprised, I immediately changed my view of his advice. Seriously, how can a man that supposedly knows so much about finance and the economy, in his mid-40s and presumably earning over $300k, have not paid off his home loan? And what business did such a man (who essentially had no investments outside of superannuation) have advising anyone about what the stock market is doing and when is a good time to invest?

I wanted to jeer him off stage, but I don’t think anyone else had even picked up on the irony of the situation. And while it is clearly a gross generalization,  I have found that most economists are in exactly the same boat. Plus if you listen closely they very rarely give you an opinion and instead seem more like horoscopes where they are full of its, buts and maybes.

2) The bankrupt accountant

As part of our firm’s expansion strategy, we went through a phase of acquiring other accounting practices some years ago. One such acquisition was from an accountant that we knew was in dire straits financially, but had a good client list with plenty of potential for growth.

While the acquisition never really ran smoothly from day one, it was some time before we really discovered exactly what this guy had been up to and why things weren’t going smoothly. While that is a story for another day, one of the biggest shocks (that really would have said it all) came when we finally saw his bankruptcy papers once they had been through the courts.

This man, who put himself out there as a pillar of the community and a model for financial success, was so far in the red it wasn’t funny. And when I say “so far in the red”, I mean over $5m in the red and that is being generous with some of the valuations of his assets.

What was even more bizarre though was that all of his clients actually saw him as a model of financial success, purely because the parts that they could see (large house, nice cars, flashy business premises) gave that impression. He actually turned out to be one of the biggest con-men that our city has ever seen, which is a far cry from the perception that the public would have had of him.

3) The 50 year old financial planner that just spent $1.5m+ on a HUGE new house that will only be occupied by two people in about four years time.

A financial planner in our region sold his financial planning practice for a lot of money (I would say $2m or more), and continued working for the firm that he sold it to. Now what would any financially responsible person do with such a windfall? Invest it wisely, which is what you would expect from a financial planner? No… he spent it on an enormous $1.5m+ house.

What makes this even more ridiculous is that the house, with its many bedrooms and acres of surrounding land, currently houses him, his wife, and three of their four daughters, but within 5 years it will be just him and his wife! Then they won’t be able to sell it!

And because of this decision, he continues to work well past the time when he stopped actually being good at or caring about his job.

Unfortunately the outside world would simply see a very successful financial planner enjoying the fruits of his labour, rather than a man squandering a once in a lifetime windfall…

4) The Partners that have simply allowed lifestyle inflation to offset any gains from their privileged position of earning such high incomes

In my experience, most partners in accounting firms simply allow their lifestyles to inflate with their income, thereby meaning that they cannot do anything but continue working until 55-60 when they may be able to take an “early” retirement.

Typical lifestyle inflation shows up in the following forms:

  • Buying luxury cars, or turning over their $50-$60 cars every three years eve though they don’t look anywhere near out of date and don’t have anything wrong with them;
  • Buying multiple cars (many have two cars themselves), including buying cars for their children that are by no means inexpensive;
  • Buying successively bigger houses, even though the houses that they are in would be considered very nice/spacious/luxurious by anyone else’s standards;
  • Moving to properties that are out of the city, thereby increasing the costs of holding/maintaining larger acreage, both in terms of dollars and also time commitment, and in so doing reducing the time available to spend on what should be important in life;
  • Increasing their commute times and travel costs from living in houses that are further from the office;
  • Going on expensive overseas holidays every 1-2 years;
  • Sending the kids to expensive private schools;
  • Paying for the university educations of their children, including tuition fees and accommodation in another city, even though it is entirely possible to book these costs up to the government’s low-interest higher education funding system, and reduce costs by sending their children to perfectly acceptable universities that are much closer to home;
  • Increasing their day to day living costs generally through things like increased dining-out, buying their lunch every day and more expensive clothing;
  • Saving as little as 10% of their income, even though their income is huge; and
  • Investing in ways where they are being robbed through management fees, usually in managed funds or with a financial planner.

As with the other examples, many partners in accounting firms don’t follow their own advice in relation to saving, investing and controlling expenses.

So how can you tell if your financial adviser is a hypocrite?

Often you can’t tell for sure, but you might look for a few of the following signs as a dead giveaway of a hypocrite:

  • They live in a very expensive house;
  • They drive a brand new car and change this vehicle over every three years;
  • They send their kids to the most expensive private schools;
  • Their spouse does not work and they can’t logical provide a reason for why this is the case;
  • They are still working past age 55 (admittedly many don’t get promoted to partner until 40 or later, but 15 years should still be enough time to make the big bucks so that you can retire);

The other way to tell is to ask them what their financial position is. Or if that’s too much of a personal question, you might instead ask them what they have invested in. I am sure that either of these questions will be quite confronting for them, and you should be able to tell from the way that they answer whether they are telling you the truth or just telling you what they think you want to hear.

So, is your financial adviser a hypocrite?

And if you find out that they are a hypocrite, will you get a new financial adviser?


6 thoughts on “Is your financial adviser a hypocrite?

  1. Hypocrisy doesn’t bother me so much as long as I am confident that my financial advisor is managing my portfolio the way I want it to be managed. Just like my dentist doesn’t have to have the best teeth in order to treat me or give me good advice on dental hygiene. But, I tend to be wary of financial advisors (and dentists!) in general, and prefer to have control over my own financials. I don’t mind paying for one-off investment advice or some related service, but when it comes to developing and employing my own strategy, I want to make those decisions myself.

    • Yeah, when I raised this issue with some colleagues at work they were a bit like you – their own finances have nothing to do with their ability to provide good advice to their clients. While I don’t disagree, I strongly believe that the message lacks credibility when the person doesn’t follow their own advice.

      Also, if a client isn’t particularly good with finances then how better to determine if the advice is good than by asking if the adviser has actually followed this advice?

      As far as dentists go, I’m with you – I would prefer not to need to see them!

      • I know what you mean, but I think it depends on what function the financial advisor is advising on. For me, I have hired a financial advisor to help me sort out my finances related to health insurance. He did a great job of untangling everything for me and setting me on the right track. Since I know him personally, I also know that his own financial life is a bit of a mess, and not one I would choose for myself. So touching on what you’ve said, I would never give him control to invest my money on my behalf, since his values differ so far from mine. But if I needed financial help and there was someone I found who mirrors my own values, I would consider it.

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