In the medical world, it is routine to get a second opinion. The more serious the condition, the more likely a patient will seek a second opinion. Most doctors take no offense to this, nor should they. However, in the world of financial advisors, a second opinion is rarer than pediatric cancers and worse, some advisors are personally offended by it. It shouldn’t be any big deal to have one of your clients go pay for an hour or two of someone’s time to make sure you’re not doing anything too crazy with their money. Of course, I understand why it is a big deal since most clients that go for a second opinion never come back because most “advisors” aren’t giving good advice. For the client, the second opinion may be retirement saving. If you’ve never had a second opinion, I highly recommend it and will discuss three ways to get that second opinion on your financial plan. But first, let’s discuss four reasons you should consider doing it:
1. You’re Probably Getting Bad Advice
It takes precious little training to become a “financial advisor,” and the vast majority of them had most of their training in sales, not financial planning. Most “advisors” are commissioned salesmen and face terrible financial conflicts of interest in answering questions about the best thing to do with your money. The worst products tend to have the highest commissions. Can you imagine if you got paid more to recommend a more expensive, less effective drug with more side effects? That’s the problem with a commissioned salesman providing advice. A fee based on a percentage of assets under management is better, but still suffers from the fact that the advisor has a conflict of interest to recommend anything that increases assets under management (IRA rollovers) and against anything that decreases assets under management (pay off student loans, pay off mortgage, invest in real estate, spending more, using a higher withdrawal rate in retirement etc.) While a fiduciary duty (and written agreement) helps, it is key to understand your advisors conflicts of interest.
At any rate, since most “advisors” are giving bad advice, a second opinion is likely to result in you getting a new advisor. So the sooner you do this, the better.
2. You Will Feel Better Afterwards
The good news is that not all advisors give bad advice. If you go get a second opinion, you may discover that you were lucky enough/skilled enough to pick a good one. Great! Now you can forget about the worries that made you seek out that opinion in the first place. Chances are you didn’t really know what to look for in an advisor when you hired your current one. Now that you do know, the process of getting another opinion will help you understand what you own, teach you how and what you are paying in fees, and build your level of trust with the advisor. Ideally, you find out your advisor is awesome and your fees are fair, but I still think that a couple of hours of your time and a few hundred dollars were well spent.
3. You Are Likely to Lower Your Fees
Most clients pay too much for financial advice, even for a good advisor. Inertia keeps clients from leaving and, when combined with physicians’ discomfort with negotiating, keeps clients from lowering their fees. A second opinion may convince you that your advisor’s way isn’t the only reasonable way to do things and that there are much lower cost ways of accomplishing the same thing.
The best way to negotiate is always from a position of power. If you have already met with another advisor who you like and who charges less than your current advisor, you are now in a position of power from which to negotiate your fees. Either your current advisor lowers the fees, or you’re leaving!
Most advisors charge what the market will bear (can you blame them?) but since the market (you) will now bear less, you’re likely to be charged less. Don’t worry, they won’t lower your fees so far that they’ll go out of business. If you’re getting them down to the point where they’re indifferent as to whether you stay or not, you know you’ve arrived at “the going rate.” Bear in mind that a more established, wealthier advisor may have a higher “going rate” than a hungrier one. That’s okay, a hungrier one is more likely to spend more time on you and your portfolio anyway.
4. You Will Probably Improve Your Financial Plan and Position
The advisor doing the second opinion is going to do their darnedst to impress you. They’re going to be pulling out all their best ideas. Even if you don’t hire him, chances are good you will learn something new that can be implemented by you and your old advisor. That’s part of the reason why I wouldn’t mind paying a fee for the opinion- it is likely very valuable.
3 Ways to Get a Second Opinion on Your Financial Plan
There are several ways to get another opinion, and all have their pluses and minuses.
1. Go See a Fee-Only Advisor
The most obvious method is to go see another advisor. Since there are too many financial advisors, most end up spending a big chunk of their time marketing, “prospecting”, and trying to build their business. They’re more than happy to spend a little of that marketing time with an interested client who is pounding on their door. That’s a super-high yield way to build their practice. In fact, most advisors don’t even charge for an initial consultation, so you’re getting that second opinion for free (not that I wouldn’t pay for a good second opinion- totally worth it.) l think every real financial advisor in the country who hasn’t yet closed their practice ought to be widely promoting their second opinion service. While they might meet a lot of “tire kickers,” it’ll help them realize just how rare advisors like them are, and it’s still pretty cheap marketing.
2. Post on a Forum
Another great method of getting a second opinion is posting your financial plan and portfolio on an internet forum such as the WCI forum or the Bogleheads forum. Writing it out will help you understand your plan better. You can do it from the comfort of your own easy chair on your own time. It’s totally free. The yeahoos on the internet have little incentive to sell you anything. Most importantly, an experienced do-it-yourselfer can rapidly point out a terrible plan. There is no perfect plan or perfect financial advisor, but you’re looking to make sure yours is reasonable. You also might get a half dozen second opinions very rapidly and easily, instead of just one.
There are some downsides to using a forum for a second opinion. No one has any incentive to help you, so you might not get all the help you hoped to get. Do-it-yourselfers also generally have an inherent bias against any financial advisors. They have concluded that, at least for them, the price outweighs the value and that attitude is likely to shine through in their recommendations. Some do-it-yourselfers can’t understand why anybody hires an advisor at all. And of course, there is also the fact that the loudest voices on the internet aren’t necessarily the wisest; the barrier to entry is even lower than that of getting into the financial field!
3. Do It Yourself
Here’s another option. Go back and start over. Knowing what you know now, start your search for an advisor over again. Would you still hire the same guy or gal? Write down the services you want the advisor to provide, what philosophy you want them to have, and how much you’d like to pay. Then go looking for someone who meets that description. Ask probing questions. Review your advisor’s ADV2. Do some self-education about personal finance and investing. Still happy with your advisor? Great! Ready to negotiate your fees lower? Great! Now ready to do it yourself? Fine! There are no bad outcomes to spending the time doing this.
Second opinions are a great way to improve your financial plan and situation. As investors become more financially literate and fee-sensitive, many will become do-it-yourself investors. Those who don’t choose to DIY are likely to pay less for better advice, build a better relationship with their advisor, and have more financial success. If you have an advisor and have never gotten a second opinion, get off your duff and go do it.
What do you think? Have you ever gone to get a second opinion about your financial plan or advisor? Why or why not? What was the result? Did you stick with the old one, hire the new one, or become a do-it-yourselfer? Comment below!