Left Hand, Meet Right

One of the things that gobbles up lots of our time as a firm is making sure the financial institutions we recommend our clients to are completing business correctly. We’ve seen them botch many a transaction. Without us guiding every single thing we send to them, our clients would not be getting what they’re paying for. When it comes to financial planning, this kind of advocacy is essential to effective implementation.

I’ve said it here before. The financial institutions want us to give them as much of our money as we can. They want to hold it for as long as possible, and they want to give us back as little as they legally have to.

Sometimes these institutions are downright dishonest. You’ve heard the news about Wells Fargo recently. It seems obvious to me that middle management wasn’t making these decisions in a vacuum. There’s no shortage of stories like this unfortunately.

But even when these institutions aren’t cheating and stealing, they’re making unintentional mistakes. Lots of them. Because they’re so big, the opportunities for communication to break down are, too. One hand often has no idea what the other is doing. And that leads to additional cost, lower returns, or worse for customers.

However, as many times as I try to poke them in the eye in this blog, they do serve an important function. We all need the products they manufacture. Their enormity enables them to bring a level of predictability and stability to the marketplace that would not exist otherwise.

That’s where advocacy comes in. As with many other areas of modern life (health care comes to mind), advocacy is valuable. An independent advocate watching to ensure accuracy and consistency can make all the difference. We can’t always rely on family or friends anymore. We need professionals.

That advocacy must be truly removed from the money flow however. Not all professionals are created equal. The way you pay them can make a big difference in the objectivity and loyalty they maintain. The wrong incentives can lead to bad results. This isn’t to say that one way is inherently bad and another good. Different circumstances and objectives call for different compensation structures. But taking the time to learn how the professionals you engage are really making their money can help you avoid enormous potential risk, or cost, or both.