Originally published on Advisor Perspectives, December 12, 2018
I’m going to choose my words very carefully here.
In my experience, some advisors are condescending when responding to questions from prospects.
This tendency is more likely when a male advisor is speaking with a female prospect.
Here’s an extract from an e-mail I received from a reader. It’s illustrative of the problem:
I have enough money that I would qualify for an advisor through Vanguard, but the last one I talked to was condescending about my choice of index funds. He then told me that I needed to have some of my bonds in the international bond market. He also said that I needed to hold the bonds in the IRA area of my portfolio rather than in the non-IRA area. All of which left me feeling confused.
Let’s unpack the issues raised by her experience.
What’s the goal?
I’m fond of saying you can be the smartest person in the room or you can get the business. It’s difficult to achieve both these goals.
The Vanguard advisor established his intellectual superiority. But he made the prospect feel stupid and diminished. On the merits, making her feel badly about wanting index funds is surprising and disappointing conduct from a representative of Vanguard – the leader in low-cost index investing.
He lost the business. She asked me to recommend another advisor. I referred her to a very empathetic and competent female advisor, whose firm primarily uses funds managed by Dimensional Fund Advisors.
Confidence or arrogance?
In her book, Advice That Sticks, How to Give Financial Advice That People Will Follow, author Moira Somers observes, “Smart service providers can develop a level of confidence that tips over into arrogance or cockiness.”
She points out many problems with this approach. Initially, giving advice without eliciting information from the client (their “experiences, beliefs, expectations and knowledge”) is a fundamental mistake. You can’t offer competent advice without making these inquiries.
What if the client had a Ph.D in finance or was recently widowed and didn’t know a stock from a bond? What if she had undergone a major life event (death of a loved one, divorce, inheritance) that affected her ability to implement (or even understand) his recommendations?
The Vanguard advisor missed this step. Instead, secure in his superior expertise, he gave my reader confusing (and, with respect to index funds) clearly wrong-headed advice, with a predictable result.
Infallibility isn’t attractive
I couldn’t agree more with this observation by Somers: “A further false premise is that clients who disagree with you are, by definition, just plain wrong.”
She’s right on several levels.
You could make an argument that Vanguard’s relatively low-cost actively managed funds have a place in the portfolios of investors. An equally strong assertion is they don’t, and that most investors are well served by using only Vanguard’s index funds.
The advisor who dealt with my reader left no room for discussion. He knew the “right way” and he wasn’t going to put up with a contrary view.
Somers refers to this attitude as a “top-down approach…based on a hierarchical and old-fashioned model of advising that tends not to go over well with younger clients, who have been raised with the belief that their opinions and input matter.”
Here’s a news flash.
It doesn’t go over well with anyone.