By Dr. Jim Dahle, WCI Founder

One of the most important things to learn about personal finance and investing is to figure out whether you are a delegator, a validator, or a DIYer. I'm trying to develop a tool to help white coat investors determine this. This is my first attempt. This one is a simple quiz. Take it, answer the questions fairly, and score it, and I think it will give you a pretty good idea of what you are. If you have no idea what a delegator, validator, or DIYer is, just take the quiz and then read the rest of the post afterward.

 

The Quiz

A. Which of the following statements do you agree with most?

  1. I do not enjoy learning about personal finance and investing at all, and I would prefer not to spend any of my time doing it.
  2. I don't like learning about personal finance and investing. But I know I need to do it, and I am willing to do some. This stuff is kind of boring, and I have much more interesting hobbies.
  3. Personal finance and investing is one of my hobbies. Maybe even my favorite hobby.

B. Which of the following statements do you agree with most?

  1. I do not know a lot about personal finance and investing.
  2. I know more than most people about personal finance and investing.
  3. I'm the most knowledgeable person about personal finance and investing that I know in my “regular life.”

C. How much do you worry about your financial decisions?

  1. I never think about money at all.
  2. I worry a lot about my money.
  3. I worry a little about money and would love to worry less.
  4. I think about money a lot, but I never worry about it.

D. I have written financial goals.

  1. No.
  2. Yes, but they need some work.
  3. Yes, I've had those for a long time. Duh.

E. I have a written financial plan to help me achieve each of my goals.

  1. No.
  2. Yes, but it needs some work.
  3. Yes, all of them.

F. I am confident that I am on track to achieve all of my goals.

  1. Not at all.
  2. I think so, but I'd love to have someone else look things over and share their opinion.
  3. Very.

G. How do you feel about paying financial advisory fees?

  1. I pay someone to clean my house and mow my lawn, so why not? I'd be willing to pay up to $15,000 a year for good advice and service.
  2. I'd be willing to pay hundreds or even a few thousand dollars every now and then for a professional opinion.
  3. Are you kidding me? What a ripoff! Do you have any idea what those fees could compound to over 30 years?

H. What did your investment behavior look like in the last bear market?

  1. When was the last bear market?
  2. I panicked and went to cash with some or all of my portfolio.
  3. I didn't panic, but I wasn't really sure what to do and could have used some help.
  4. I stayed the course, continued to invest, and rebalanced my portfolio as necessary.

I. How comfortable do you feel putting in buy and sell orders for investments online?

  1. Not at all comfortable.
  2. I think I could get there.
  3. Very comfortable.

J. How many of the following do you have or have you had in place: a will, trust, disability insurance, term life insurance, personal liability insurance, 529, HSA, Backdoor Roth IRA, solo 401(k)?

  1. 0-3.
  2. 4-6.
  3. 7+.

K. How do you feel about a Backdoor Roth IRA?

  1. What's that?
  2. That sounds really complicated.
  3. I bet I can do that, but I'd like to run it by a pro the first time to make sure I'm doing it right.
  4. No problem.

L How do you feel about performing a retirement account rollover on your own?

  1. I don't even know where to start.
  2. I think I'd probably screw that up.
  3. I bet I could figure that out.
  4. It won't be the first time, and at least my fees will probably be lower and my investment options will be better.

M. If a financial advisor handed you a well-written, personalized financial plan for the next five years of your life, what would you do with it?

  1. Put it in my filing cabinet.
  2. Follow it to the T.
  3. Pick it apart, question everything in it, and run it by my friends on the internet to see what they think of it.
 

Score the Quiz

If you've answered every question, it's time to score the quiz. The minimum score is 13. The maximum score is 43. However, this is not the MCAT. The highest score is not “the best” score. You're not looking for the highest score. You're looking for the most accurate score. Need to go back and take the quiz again? Probably. Go ahead, I'll wait.

OK, got your score now? Here's what it means.

13-18: You are definitely a delegator, and money spent on a “full-service” financial advisor is a great deal for you.

19-23: You're probably a delegator, but you could become a validator over time if you are interested. But even then, you will likely need frequent check-ins with an advisor.

24-32: You are, at least currently, a validator, and you need to hire a financial advisor specializing in validators.

33-35: You are a validator with some DIY tendencies. If you want, an advisor specializing in validators may be able to train you to become a DIY investor over time.

36-43: You are a DIYer. Stop fighting it. Get a plan in place, get those last few items on your list taken care of, fire your advisor, and follow your plan to investing success.

If you scored in the 28-40 range, you should consider taking our Fire Your Financial Advisor online course. It comes with a one-week, money-back guarantee.

If you scored below 36 and do not currently have an advisor that you know is giving you good advice at a fair price, you should look for a new one from our recommended list. If your score was in the 24-35 range, you have a more challenging task ahead of you. You will need to select an advisor experienced in and willing to work with a validator-type client. One of your first questions should be something like, “I think I'm a validator-type client. How do you feel about working with people like me, and how is your firm set up to serve people like me?” If the answer is, “What's a validator?” or, “We're really set up to serve delegators primarily,” you need to move on. If the answer is, “We have dozens or hundreds of validators who have used our firm. Some became DIYers and fired us, and some realized they were really delegators. But there are plenty who now just check in with us every year or two for a fair hourly or flat fee. We have a fee structure that works well for most validators.” That's when you know you've found the right firm.

More information here:

The Perfect Financial Advisor

Should the White Coat Investor Become a Financial Advisor (and Charge AUM Fees)?

 

What Is a Delegator?

A delegator is a client who wants and needs to use a financial advisor. While they need to make sure they're actually getting good advice and paying a fair price (not the easiest thing for a true delegator), they will generally be happiest and richest by developing a long-term relationship with a high-quality advisor. They do not enjoy messing with their money, don't have much experience with managing money, and worry a lot about doing the wrong thing. They do not mind spending money to buy back their own time. Approximately 30% of white coat investors fit into this category.

 

What Is a Validator?

A validator is a client who wants a lower level of service from a financial advisor in exchange for a lower level of fees. While investing isn't their hobby, they're willing to work hard to learn how to do financial tasks, like a Backdoor Roth IRA, a retirement plan rollover, or rebalancing a portfolio. They don't read financial books for fun, but they are willing to read a handful of them. They like the idea of checking in with an advisor every now and then to make sure they're on track and ask a few questions. Approximately 50% of white coat investors fit into this category.

 

What Is a Do-It-Yourselfer (DIYer)?

A DIYer is a hobbyist. They love this stuff. They are not only subscribed to this blog, but they actually read most of the WCI emails sent to them. They sometimes comment on them or forward them to friends. They participate in online personal finance and investing communities like the WCI Forum, the WCI Financially Empowered Women (FEW), the WCI Facebook Group, or the WCI Subreddit. They might consider themselves “a Boglehead.”

They might own a few rental properties, and they might have even managed the properties themselves for a few years before hiring it out. While they may or may not invest in private investments, they have an informed opinion about them. They would consider attending a money conference, and they might even apply to speak at it. They enjoy reading financial books. If they have a financial question, they're more likely to ask it online than to find an advisor. If they did ask the question to an advisor, they'd still run it by their online friends to see what they think about the answer. They feel confident in their ability to find accurate answers to their questions in places like IRS publications. They are very “fee-sensitive.” They might be a DIYer in many other areas of their life, such as lawn care, housekeeping, car maintenance, travel planning, tax preparation, and more. Approximately 20% of white coat investors fit into this category.

What do you think? Are you a delegator, validator, or DIYer? Why do you think this is important to determine early in your investing career? What happens if you are one thing but try to act like another?