Choosing the Right Investment Advisor and Building a Purposeful Relationship involves evaluating his expertise and trustworthiness
Investing in the stock market, and profiting from that endeavour sustainably, requires an investor to understand an individual stock’s business fundamentals, its growth prospects, and the general market trend. He then needs to estimate an intrinsic value for the stock based on his understanding of the above factors. However, many lack the necessary knowledge and skills to do that effectively. Hence, they rely on the opinions, suggestions, and advice of experts – those who (he thinks) know how to analyse and value a stock – to guide their investment decisions.
If you are one of those who rely on experts to guide your investment decisions, then your success at investing – which is to achieve superior returns in the long term – depends on how good these experts are at their job. So, you must choose your ‘expert’ – your investment advisor – wisely. A good ‘investment advisor’ should have adequate technical expertise – the ability to analyse and value stocks to identify investment opportunities and construct an efficient investment portfolio.
The Expertise Element
However, how do we ascertain an investment advisor’s expertise? It is unfeasible for us to evaluate an advisor’s domain expertise accurately due to our paucity of domain knowledge, the reason we decided to rely on the advisor in the first place. Therefore, a more effective approach would be to deal with the issue psychologically. A person – if his claim to domain expertise is truthful – should exude confidence, clarity of thought, and conviction. Such persons are open to conversation, make eye contact during the conversation, and their verbal and non-verbal tones match during the conversation. Therefore, checking for these traits in an advisor’s communication can help us decipher his domain expertise more accurately.
Ask him questions like: What is your investment strategy? What is your investment process? How do you decide when to buy or sell a stock? And while he answers these questions – rather than focusing on ‘what he answers’ (the technical aspect) – focus more on ‘how he answers’ (the behavioural aspect) – to evaluate his domain expertise. The answers to these questions – by an investment advisor who is rich in domain expertise – should radiate confidence, clarity of thought, and conviction.
However, ‘expertise’ alone doesn’t make one a good investment advisor. How the advisor uses his expertise is imperative. Does he use it in the interest of his clients or in a self-serving way? Along with a rich domain expertise, a good investment advisor should be trustworthy. He should honestly provide information so that his clients can 1) solve their problems, 2) fulfil their needs, and 3) achieve their investment goals.
The Trust Element
We must take advice, particularly in matters of money and investing, from trustworthy people. Unfortunately, this is where most people make mistakes. They trust the wrong person. This happens because, as humans, we have a natural tendency to trust anyone we know or like. We are more open to asking and taking advice from our family members, friends, colleagues, or neighbours – without reflecting on whether these people are proficient enough – to give advice on the subject matters – on which advice is been sought.
We like our celebrities and hence take their advice at face value when they promote a product or service because we like them. At the same time, we have a natural distrust for strangers, even though a select among them might be proficient in the subject matter, and thus a better source for advice.
How do we overcome this natural human shortcoming? I believe what is required is: 1) the acceptance of our fallibility to easily trust anyone we know or like, then 2) an openness to challenge our preconceived assumptions and beliefs, and finally 3) a conscious and deliberate effort to find the right person to trust, from whom we could seek advice on investment matters and build a mutually beneficial relationship.
And how do we do that? One thing you should know about trust is that it is not gained instantly. It takes time and is built in steps through regular engagements between the investor and his adviser during which value is being exchanged. It would be best if you avoided an advisor who is apathetic to your needs but, at the same time, is too eager to impose his self-serving counsel on you. A self-aware person can detect such insensitive intentions quickly; therefore, self-awareness is a constructive skill in investing.
The Personal Element
A good investment advisor listens carefully to understand your needs and problems; he is genuinely concerned about you; he cares about you and your well-being; and is courageous and willing to do the right thing, which is to pass investment advice that serves your best interests. He gives much more than he takes. He gradually earns your trust through such small actions and gestures. This gradual process of trust-building takes time and requires patience from both parties.
You are unique, and so are your needs and problems. A good investment advisor is someone who makes a sincere effort to understand your unique position. He does this by asking a lot of questions and doing a lot of listening. We don’t want him to pass us instructions on what to do and how to do it. Instead, he should provide us with options to choose from, based on his understanding of our unique situation. Also, he must give us the reasons and rationale behind the options. He may provide his recommendation among the choices; however, leaves the final decision-making power to you (the client), because he firmly understands that his role is to inform, educate, and guide you in your investment decision-making process.
The Emotional Element
Suppose you went to the best Biriyani restaurant in your town and ordered a Chicken Biriyani. However, when the waiter brings you the order, rather than politely deliver the dish, he pushes the dish towards you in an arrogant and hostile manner. This will hurt you, generate defensiveness in you, and destroy the entire experience, even though, it might still be the best Chicken Biriyani in your town. The same is true for investment advice. How the advisor delivers the advice is equally important as the advice itself. Giving investment advice is never a purely rational process, it has an emotional element too, and a trustworthy advisor is aware of it.
The investment advisor’s role is to help us make better investment decisions. He should remove our worries, allay our fears, and remove hassles for us; not add more complexities to the situation and exacerbate the problem. We seek his service because of our lack of domain expertise; hence, he should convey information in a language that we (clients) understand. It is a common mistake committed by experts to deal with their clients in a patronising way. Unfortunately, many experts are genuinely unaware that they are committing this mistake. Your advisor, however superior his expertise might be, should respectfully deal with you. Mutual respect is a vital component of a trustworthy relationship.
The Risk Element
Relationship building – whether professional or personal – is not devoid of risks. You should be vigilant to these risks at every step of the relationship-building process. One of the risks is the risk of rejection. The client-advisor relationship is a two-way relationship – it requires involvement and commitment from both you and your advisor. You must accept the fact that it is not enough for you to like the advisor to have a meaningful relationship with him; the advisor must like you too. It is unproductive to make it personal and ruminate over ‘why didn’t it work out?’ if things don’t unravel as per expectation. Instead, the ability to ‘let go’ and ‘move on’ is the optimal approach in such situations.
Another risk is you trusting the wrong person. I am not talking about falling for a conman – though that too is an important risk factor. Normally, the person might be a genuine professional, but just not the right person to help with your unique needs. To mitigate this risk, at least to an extent, rather than accept as true whatever the advisor asserts as his expertise, you should provide him with opportunities to demonstrate his expertise. Once given such an opportunity, a good investment advisor’s subsequent attitude and actions should match with what he claims about himself. This way you can guesstimate his willingness and expertise to contribute to your cause much more accurately.
The Human Element
We are all human beings. But what is it that makes us human? Whatever that may be, it is so vast and complex to be uncomprehending for many of us and is beyond the scope of this post. It involves empathy, compassion, gratitude, humility, and curiosity, among many other elements.
A good investment advisor deals with you in a humane manner. He shows genuine interest in the person you are – your aspirations, interests, tastes, likes, and dislikes. He makes you comfortable, is supportive, and genuinely cares about you. He doesn’t discharge advice when not asked for. He doesn’t make demands, but only requests.
He understands that all persons are different in different ways, and so are you, and makes a deliberate effort to understand your unique situation and how you feel about it. He has clarity of expression – he says what he means. And most importantly his actions and behaviours convince you of his altruistic intentions that finally earn him your trust, and thus, the right to provide you with advice.
AMN CAPITAL 