Why Laziness Can be Dangerous When Looking for a Financial Advisor

Instead of doing your own search for the financial advisor who is right for you, it’s simply easier to take the recommendation of your friends, your accountant, or even your lawyer. If you follow the advice of others, consider it only as the starting point . . . not the finish line.

Sadly, word of mouth is by far the usual way we find a new doctor, lawyer, or financial advisor. Humans are social animals; we like the comfort of the herd—of knowing, if only subconsciously, that even if we’ve made a mistake, at least we’re not alone in doing so.

It’s obvious why the lazy person’s approach to financial expertise is foolhardy: What does your friend actually know about the advisor he uses? Did he make the recommendation because his advisor is a charming guy with a six handicap who drives a flashy Porsche Turbo? Did your friend do his homework, researching all the areas that demonstrated competence, a proven record of performance, and a history of trustworthiness?

Does your friend even know the right questions to ask?

Now we’re getting somewhere—because this is where most people stumble, surrendering their common sense and walking single file up the ramp to the slaughterhouse floor.

The fact is that most people don’t understand the complex and often-illogical machine that is the financial world. They’re baffled by the stock market, not understanding the fickle forces that drive it up or down; they read the financial pages of their newspapers, studying articles written by “experts” (never suspecting that these experts are, all too often, themselves totally ignorant of the processes on which they report).
They suspect the financial markets are part of a “fixed game” (and sometimes we find it is, but not often); as a result, they seek as an advisor anyone who has the slick confidence to talk a “good game” (even if that talk is often febrile nonsense). 

 
When we don’t understand how something works, we tend to look for an expert. If the problem is automotive, all we look for is a good mechanic; but if it is financial, for a number of deep (and dark) psychological reasons, many of us look for a magician.  It seldom works. There’s a right way and a wrong way to seek financial help; the right way works and the wrong doesn’t.