DOES YOUR ADVISOR HAVE THESE THREE ELEMENTS OF TRUST?

Say you're looking for help --- an accountant, dentist, landscaper, lawyer or vet. You have lots of choice. You can set your minimum requirements and still have your pick. How do you decide who you can trust?

Why not look for

1. chemistry
2. credentials
3. generosity

Not one or two, but all three. Here's why. Let's use advisors as our example.

Chemistry

Chemistry is intangible and personal. You like someone or you don't. There's a special connection or there isn't. If you're intuitive, why not trust your first impressions or how you felt just after the meeting? If you're analytical, you'll need more time. When you decide, compare with your "gut feeling".

If you work for a corporation, you're stuck with people they picked. Even there, chemistry helps you motivate colleagues to help you.

Caveat

If you often have trouble finding anyone, you may be too picky. Perhaps there's something about you that repels others. Since we can't see ourselves objectively, ask others you trust about how others react to you. Listen without attacking your messengers. Later, reflect. You could make changes that help you in all aspects of your life.

If you select based on chemistry alone, you'll get someone charming but that doesn't mean they have the ability to do the work properly.

Credentials

While chemistry is about magic, credentials are about ability. Some fields require little training. In sales, personality and techniques can take you far. Life insurance is considered "sold, not bought", which attracts advisors whose main expertise is in selling.

As clients become more demanding, the advisors struggle to keep up. Some upgrade their skills. Others keep doing what they've been doing, counting down the years to retirement.

You'll find advisors with years of experience --- 10, 20 or more --- but no designations. Not even a university or college degree. If they truly have the skills, don't you think they could have easily completed formal training? Maybe they tried, failed and quit. Ask and they get defensive. They may tell you they don't need to prove to others how much they know. Yet they do.

Those without designations have trouble demonstrating their competence. So they tend to complicate matters to show how much they know. Bad move. The truly knowledgeable have the passion for simple --- which you'll appreciate.

Pushing through the dip to earn a designation takes time, intelligence and persistence. Those who succeed resent those who failed but claim to be as good (or better). In particular, accountants treat advisors without proper qualifications as salespeople rather than professionals.

Designations aren't enough by themselves. Some were earned ages ago. Some don't require continuing education. Some were purchased. Some were earned in foreign lands and don't mean much here. Also look for believable testimonials from clients on LinkedIn or other credible sites.
Look for samples of past work. If there aren't any, ask yourself why.

Caveats

Designations are brands. Brands compete. Brands want buyers. A new designation may have an "introductory offer" which waives or dilutes the normal admission requirements. Some designations become obsolete or have no requirements for continuing education. If in doubt, do a web search.

Also, be wary of impressive titles. They can be concocted.

Those who can, do. Those who cannot, avoid the real world by staying in school. Too many designations is as bad as none. Can someone truly master many different skills? There's an element of boasting too. Quality trumps quantity. You'll find designation hounds who can't apply their learning. What a waste. You want a practitioner, not a professor.

Generosity

Advisors with an abundance mentality will share. Donations to charities or volunteering at the food bank are wonderful. You're probing for something else: signs of generosity that directly helps clients. Information makes the ideal gift: blogs, videos, photos, newsletters, answering questions on LinkedIn or other forums.

Maybe the advisor is willing to share but lacks the technical savvy to put content online. If they have trouble learning new basic skills, how can they bring you the latest ideas?
If the advisor won't share, they may have a scarcity mentality. Maybe what they know is generic and they're afraid you'll discover they offer nothing special. They may worry about competitors copying them. If you were able to compare, you'd see their competitors already do similar things in similar ways using similar tools.

Competitors may have similar chemistry and credentials. They probably don't have the same level of generosity, which is why all three matter.

Links

• The foolproof measure of trust (new)
• Fraud U: toppling a bogus-degree empire (Wired, Dec 2009)
• What do designations mean? (Alberta Securities Commission)
• Do continuing education (CE) credits protect you?
• Does your advisor have your best interest at heart? (Million Dollar Journey)
• How advisors fool you (and what you can do)
• Are chemistry and credentials enough for trust?

Podcast Episode 68 (5:47)

direct download | Internet Archive page

PS You're looking for someone you'd feel comfortable referring to people you care about

13 QUESTIONS TO EVALUATE AN INVESTMENT THAT'S "TOO GOOD TO BE TRUE"

We want to get rich quick, ideally with no money down. There are people who claim to have unique solutions. That's what we want to hear and believe. Think of the investments marketed in rented halls.

The results will sound possible and even probable. That doesn't mean they are.

Look for what’s left out.

The easiest way is by figuring out what you want to know in advance and how you (or others) got fooled before. During the presentation you'll be bombarded with information presented in a compelling way by people who seem like experts. Your past experiences give you an anchor.

Questions

Here are some questions to ask yourself before investing.

1. What does Google say?

If a web search shows little from independent sources, how can this be? So much is online these days. Why hasn't a journalist or financial blogger written about this amazing opportunity before? An old adage reminds us to stay silent if we can't say anything nice. That's true for writers too.

The promoters probably have a website. How complete and informative is it? Do they answer common questions or ask you to meet them in person or attend a live event? How many exclamation points do you see? Do you spot any obvious mistakes?

2. Do you understand the offer?

The easiest way to tell if you understand something is by explaining it to someone who wasn't there. You'll quickly discover how much you don't know and the questions you have.

Is the investment strategy different from classics like buy-and-hold or buy-low/sell-high? If so, there's more to understand.

3. What are the credentials of the team?

You may get the impression that the team did great things and their ideas are endorsed by reputable others. Perceptions aren't reality. Maybe they worked at well-known firms but didn't do anything worth mentioning.

Are their names, photos and backgrounds on their website? Are they on LinkedIn with credible testimonials?

If they are special, they'll show up online. Maybe you'll find a photo of them receiving the Nobel Prize for sheer brilliance or getting knighted by the Queen by elevating humanity to new levels.

4. Are they giving specifics?

An apple is much like an orange. They're both fruit with similar sizes and shapes. But they're different too. Without specifics, you won't know what kind of fruit you're getting. We share 99% of our genes with mice but the 1% that differs --- about 300 genes out of 30,000 --- does matter.

Presentations are designed for emotional impact. Details are better covered in the handouts. There are handouts, right?

5. What’s verbal vs.. visual vs. handed out?

Talk's cheap and easy to misunderstand. The presenter implies and you infer. There's rarely recorded proof of what was actually said. That's why you need handouts with enough information to make an educated decision. 

Even simple, low cost offers like a movie ticket discount have conditions. The fine print takes away from what you think you're getting.

6. Do they fully answer questions, skirt around them or defer them?

You're probably watching a well-rehearsed presentation with words, examples and gestures selected for maximum impact. Questions give the audience control. The answers give valuable insights.

A question deferred is a question unanswered. You may forget, or time may run out. Some presenters  intentionally use up all their time so they don't have to reply.
Contentious questions get rephrased. Sometimes the presenter will skip over someone whose questions they don't want to hear. They simply point to another part of the room and asking "Is there a question over here?"

7. Do they truly explain the downside risks?

If there are no apparent downsides, be very wary. Risk accompanies reward. Results may look guaranteed because of past performance but that's not a predictor. Is the price of gasoline today what you or the experts predicted? What about house prices, the dollar, the stock market?

We're routinely surprised and unprepared when the highly unlikely keeps happening.

Maybe you infer there are guarantees from the government or other parties. How real are the promises, what do they protect against and when do they apply?

8. How are they making money?

If the investment is so wonderful, why are they advertising and renting halls to tell strangers? They could easily use their own money or raise funds from conventional sources. They probably have nice, plausible, rehearsed answers.

9. Where are the competitors?

If the investment idea is new, you might be a guinea pig. If the idea is established, there's usually competition. Attendees talk. Even brilliant one-of-a-kind ideas get copied.

10. Are quantities limited? Is this a limited-time offer? Are prices about to go up?

If you're ready to invest today, at least find out what happens if you change your mind. That might change your mind. Maybe you can pay with a post-dated cheque. Maybe you "forgot" your credit card and must pay later. Those are possible delaying tactics.

The same presentation will likely be repeated in the same location or nearby. The same offer will likely be made then.

11. Why are they charging rather than giving the ideas away for free online?

Some presenters claim to be altruistic. They want to help you the way others helped them. They're not "in it for the money". Great. They can share their ideas online in text, audio and video. Are they? They'll reach more people at no cost (especially if they add a Facebook Like button).

Just because you know how to do something doesn't mean you will. You may still need or want their help to buy the investments.

12. Who’s the target audience?

Some investments target people who are easily manipulated, have bad credit or have little money. That's not a good sign. How did you find out about the event? Was it from source wealthy people also use?

The target group also determines the location (low frills to fancy), refreshments (none to nice) and seating (cramped rows or tables with water, candy, paper and pens).

13. How do you get out?

If you invest and want to get out of the special opportunity, can you? Must you stay invested for a certain period? Are there penalties? Is your investment liquid? Can you borrow against the value of your investment?

Sober Second Thought

When you mix emotions with a smattering logic and a desire to believe, you get a dangerous concoction. Before acting, do review the ideas with your independent tax advisor. If you don’t have one, ask yourself what Warren Buffett would do and think about why.

Like it or not, risk accompanies reward. Maybe you don’t see the risks or believe they're likely. That doesn’t mean you're safe. Sorry.

Links

• Who is easily manipulated? (Seth Godin, May 2010)
• The fine print taketh away
• Secrets to billionaire success
• Too good to be true: the Real Estate & Wealth Expo
• Observations from the Toronto Franchise Show
• How an actuary invests
• Three reasons the rich get richer
• image courtesy of Rore D (France)

Podcast Episode 67 (8:23)

Direct download | Internet Archive page

PS Feel free to add more questions

BILLIONAIRE SIR TERENCE MATTHEWS ON HOW TO COMPETE WITH INDIA AND CHINA

Foreman says these jobs are going, boys
and they ain’t coming back
--- Bruce Springsteen, My Hometown

While a US engineer earns $70,000, similar talent costs $7,000 in India and $5,000 in China. That’s too big a differential to ignore in today’s ultracompetitive world. IBM alone hires some 3,000 engineers per month in India. This cheaper labour saves companies in countries like Canada about 20% of their IT costs and earns nice returns for the integrators. You won’t be quite as happy if you’re a displaced engineer.

Sir Terence Matthews gave  sobering messages at CALU 2010 today in his presentation ACT or Be Acted Upon. Terry is a low-key Canadian billionaire who does business around the world. He doesn’t golf but is hosting the 2010 Ryder Cup. Of his 80 ventures, he has 75 successes.

He gave a simple prescription for the conundrum of low cost foreign labour.

A Solution

Terry does not advocate anti-competitive measures. With businesses around the globe, he and his clients benefit from lower costs.

Google uses US engineers but remains competitive. How? Because of innovation and being first. Other companies can do the same.

Terry hires entrepreneurial graduates for start-up companies. Since they don’t have spouses or children, they can and do work long hours seven days a week for $25,000 a year. Why? The graduates learn valuable business skills and get partial ownership in the new venture in a year.

Since new companies have trouble getting clients, Terry pairs them with his established companies like Mitel for instant credibility. The clients are approached before the work starts. Rather than using the build-it-and-they-will-come model, Terry prefers to sell first and build second.

There’s hope for the innovative and swift. There’s also hope if you do work that must be done locally. How would you outsource a haircut?

Links

• Sir Terence Matthews (Wikipedia)
• Does billionaire Seymour Schulich help you "Get Smarter"?
• Warren Buffett's tough career choice: actuary or billionaire?
• Your life expectancy exceeds a billion seconds
• Billionaire Richard Branson: when your servant is your master
• Three reasons the rich get richer
• Secrets to billionaire success
• How to visit India (new)
• image by Darren Brown (Ottawa)

Podcast Episode 65 (coming soon)

(I’ll record the podcast when I’m back in my Toronto studio later this week. I did not lug audio gear to the conference.)

direct download | Internet Archive page

PS More highlights from CALU 2010 to come