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Hiring a financial adviser is a crucial step in building generational wealth. Yet some individuals approach the relationship with reservations.
I’ve seen clients hide emergency funds, prized possessions or even full investment portfolios.
Trust can be difficult to come by, especially when it comes to the assets you’ve worked so hard to acquire. But hiding things from your adviser will only do more harm than good.
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Hiring an adviser while tying their hands creates a financial plan that boils down to one step forward and two steps back.
If you’re looking into hiring an adviser, or have had one for years, I have three questions for you to consider about the openness of the relationship you share.
1. Why hide something?
Fear, shame, a desire for control. The reasons vary, but the results are the same: Limited growth and unforeseen consequences.
Here are a few examples of complications in the adviser-client relationship:
- Every client will have emergency savings funds. Some think that keeping something stowed away, even from their adviser, protects them if everything should go “belly up.” They fear being fully transparent.
- People make mistakes. Clients may be ashamed of debt they’ve acquired, poor investment decisions or even desire to hide assets from their partners. Shame is a poor foundation to build upon.
- Some clients just can’t relinquish control over their finances. They may even feel the need to “test” their advisers. I’ve seen those who hire multiple advisers, just to see who does best with the assets provided.
A doctor can’t prescribe medication without knowing your medical history, and a financial adviser can’t advise without knowing the true state of your finances. A lack of transparency, to any degree, will have consequences.
2. What’s the harm?
Risk assessment. Hiding investments? You could be heavily oversaturated in portions of your portfolio or paying duplicate management fees. Hiding funds? Your plan could be much too conservative, limiting your growth.
Needless taxes. If you end up in a higher tax bracket than anticipated, you’re lighting your money on fire. Every dollar you own moves you closer to a line, and your adviser needs to know exactly how close you are.
Retirement consequences. Are you on track to retire? Your adviser will tell you exactly how much to be saving and spending based on your income and investment planning. That advice becomes skewed if the information they work with is no good.
The short answer? It’s going to cost you. How much depends on the size of the skeleton in your closet. A retirement plan requires a holistic view of what you have. We need all of our tires spinning in the same direction, but hiding assets means leaving some of the wheels off altogether.
3. What’s the payoff?
If you are fully transparent with your adviser, you get exactly what you pay for. A long-term, holistic plan that allows you to be at ease about yourself and your family’s future. If you haven’t been fully open with your adviser, there’s no time like the present.
Simply because you inform your adviser about something doesn’t mean they’re going to take it out of your hands.
You should feel good about meeting with your adviser. You should walk out of the building excited about the future. If that isn’t the case, it’s reasonable to consider changing your adviser.
The goal is peace of mind, and if you don’t have it, you should be asking why.
At the end of the day, the numbers are all impacted by your relationship. It’s not unlike a marriage. If you choose to hold something back, if you’re not fully committed, trouble will brew.
Partners who bare their souls to each other see strong and long-lasting relationships. If you’re not all in, you’re kidding yourself.
It’s incredibly rewarding to see trust built in the client relationship. You can physically see it. The shoulders drop, the room is calm, and there’s an excitement in the air, not tension.
But the decision to reach that point lies with you, not your adviser.
