Should financial planners be dressed like socialites?
(Photo by Jonathan Mueller)

People seek the advice of financial planners because they want to make better financial decisions and improve their financial situation. But I believe the most important decision they make is whom they engage to be their financial planner. Some may seek a financial planner based on a friend’s recommendation, but if you don’t personally know someone in the industry, it’s easy to fall into the trap of choosing a person who “looks like a million bucks” thinking that they will be your best bet. Why is this a very bad idea?

Both clients and planners perpetuate these 5 fallacies, which leads to a whole host of bad decisions.

Fallacy #1: Thinking that “outward success” equals actual success.

Fallacy #2: Thinking that those who possess the trappings of wealth actually earned it.

According to best-selling author Dr. Thomas J. Stanley’s book “Stop Acting Rich: And Start Living Like a Real Millionaire“, most millionaires are surprisingly frugal, while the vast majority of people who seek luxury brands and outward displays of success are simply pretenders, that is, people who are caught up in the trappings of wealth instead of having actual real wealth. I’ve met way too many financial planners who “appear” successful but who are themselves highly-indebted fakes. They wear designer clothes, sparkle with luxury accessories, and proudly carry their client files in branded bags and briefcases.

And when I ask them if they themselves are financially free (i.e., if they stop working, will they have enough to last a lifetime?), the vast majority will say “No”. And to my surprise, they are often caught off guard by this question. Many of them have low net worth, which means they might be funding their outward displays by using debt. We live in a time when the biggest house and fastest car does not have to be bought with earnings from being productive or successful, but with loans or credit.

Fallacy #3: Thinking that the business model of a financial planner (i.e., how the planner gets paid) is not relevant.

While I think it’s perfectly ok to work with a financial planner who is himself/herself not yet financially free, I do advise that you think twice before engaging any financial planner who seeks such trappings as a way of drawing in clients. Ask yourself where all that excess money is coming from. If not from loans or credit, then it is coming from you, their client. Your planner may be charging excessive fees or extracting high commissions from selling you financial products and services (Fallacy 3). Many planners in Singapore are “fee-based”, which means they can charge a fee for creating and executing a financial plan in addition to getting commission from selling products, and management fees for managing your assets. This can create incentives to sell you products and services. Many of which may not be optimal, appropriate, or superior to other less expensive options.

Fallacy #4: Thinking that the only viable path to wealth is through investments.

When I was on a football team, my position was the goalkeeper. As with football, winning the game does not just depend on a strong and capable offense, but also a solid and good defence. Goalkeepers are often the most underappreciated positions yet ironically, they also are the most blamed for “losing the game.” This just goes to show that a strong defence is so important that it often times can make or break a winning strategy. Such is also the case for achieving wealth. But most financial planners will never talk about cutting spending, frugality, or finding other ways of saving. They instead, focus almost entirely on investing. This is often because they themselves do not practice frugality. In a sense, I see this as the blind leading the blind.

Fallacy #5: Thinking that wealth and its trappings will achieve happiness.

We all desire to be happy, but because happiness is illusive and hard to define, many think that if they achieve a certain amount of success, then they will be happy. And then they think that in order to prove success, they will have to achieve a certain amount of wealth. And in order to prove wealth, they will have to buy displays of wealth (which goes back to fallacy #1). So many people will work hard to buy these things, yet all along, they’ve lost their original goal, which was happiness. Furthermore, studies have shown that amassing a large collection of possessions and material things actually results in unhappiness. So not only did these people lose their original goal, but they are actually down a path that leads to the exact opposite outcome. Most financial planners don’t delve deep enough into what their clients really want.

What a Financial Planner Ought To Be:

A financial planner should be attuned to value, that is, making good use of not just their client’s money but their own money as well. Good financial planners should be like other self-made millionaires – FRUGAL. I know there will be some financial planners who would argue that a $1000 Armani shirt is a good use of their money as it will attract more clients and wealthier clients. Perhaps they are correct, but this is a marketing ploy which can serve them well, but does it actually help you, their client? Is your current financial planner or prospective financial planner someone who has successfully demonstrated that they can avoid these fallacies, or are they wearing Cartier, Ralph Lauren, Hermes, Burberry, or other luxury brands and perpetuating these fallacies?  Do they themselves exhibit discipline and good financial prudence in their own life? Remember talk is cheap and actions speak louder than words.    

2 Comments on Avoid Financial Planners Wearing Cartier, Chanel, Hermes, Burberry, or Other Luxury Brands

  1. Fallacy #3: Actually, most financial planners in Singapore are still commission-based. Many financial planners who charge an AUM fee think that qualifies them to be called “fee-based”. Most financial planners don’t earn anything if they just design and execute a financial plan without financial products. Which is what we want to change.

  2. I do see how at some point wearing super expensive clothes and accessories might have inspired confidence and capability but these days I see that more as a showoff and with all the possibilities to rent or buy everything on credit, it’s not a good criteria to take seriously.

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