“People ask me my forecast for the economy when they should be asking me what I have in my portfolio. Don’t make pronouncements on what could happen in the future if you’re immune from the consequences. In French, they use the same word for wallet and portfolio.” Nassim Nicholas Taleb, Financial Author

How would you feel if the guy who sold you a Ford drives a Chevy?

The revelation would be unsettling to say the least.

That’s precisely the situation for millions of U.S. investors.  According to the Financial Times, half of the 15,000 mutual funds in the US are run by portfolio managers who do not invest a single dollar of their own money in their products.

How many advisors pitch toxic products they wouldn’t invest a dime of their own money in?

Do you think the young, inexperienced broker selling variable annuities owns one?

How about the salesperson pitching whole life insurance to anyone with a pulse?  Do they shovel thousands of dollars per month into a personal whole life policy, with interest rates near all-time lows?

Does the wirehouse financial advisor put his or her own money in sales-loaded A share or expensive C share mutual funds?  

How about the advisor pounding the table for an allocation to alternative, non-liquid investments?  Do they lock up their own money for years, pay high fees, and have no clue what they own?

We would guess a hard “no” on all of the above questions.  In the event of a rare “yes”, that’s a serious case of delusion mixed with beer bonging the corporate kool-aid.

So, when you’re sitting in front of an advisor pitching you on a financial product, investment strategy, course of action, etc., the quickest way to cut through the BS is by asking, what do you do with your own money?

Granted, we all have different views of the world and varying financial circumstances.  However, you want those who are pitching you to eat what they cook in some capacity.  In other words, they should be personally impacted by their own recommendations.

This goes for grand proclamations, anecdotes, market forecasts, and confident viewpoints.  Is your financial advisor telling you the market is going higher prior to year-end, but raising cash in their personal portfolio?  Assuming the advisor doesn’t have an expenditure or change in circumstance, the disconnect would be troublesome.

For full disclosure, we invest our personal and family assets right alongside our clients.  We believe in our evidenced-based investment approach of keeping costs low, not owning active mutual funds, and shunning exotic alternative investments.  It’s unfortunate that this manager/investor alignment is the exception rather than the rule in our industry.

The Wall Street marketing machine is clever.  It is masterful at selling a narrative or playing up to your fears.  Firms pump millions into arming their salesforce with tactics to monetize your relationship.  Millions are spent on corporate lobbyists to preserve this revenue stream generated by conflicted advice.

Don’t fall for an elaborate story.

Make eye contact, tap the conference table, and stoically ask “what do you own in your portfolio?”  An adversarial advisor will pause, squirm, or stammer for a response.

The evidence-based advisor will proudly inform you they invest right alongside their clients.