Five qualities, and what they add up to.
You can use them to choose an advisor, and advisors can use them to see where they stand. Each one shows up in ordinary conversation, long before any money moves.
Chapter 2 of The Only Difference
Alignment
Whose side are they on?
Show me the incentive and I will show you the outcome.
Attributed to Charlie Munger
Every advisor is paid by somebody. Alignment asks whether this person is thinking about your family's next twenty years or about what the next transaction pays. It is tested with plain questions, and by listening to how the answers arrive.
From the Test
- 1If things go wrong in a few years, will they still take your call?
- 2Have they ever advised you to do less or spend less than you planned?
- 3When you told them something new about your situation, did their advice change?
- 4Can they tell you how they helped a long-standing client last year, beyond selling them something?
Chapter 3 of The Only Difference
Depth
How far down does your advisor actually go?
The first principle is that you must not fool yourself, and you are the easiest person to fool.
Richard Feynman, Caltech commencement address, 1974
Depth is the boring part done first: the document read, the ground walked, the number checked before it is repeated. Most bad advice is a sincere recommendation from someone who did not know.
From the Test
- 5Do they check the facts themselves, instead of repeating what they were told?
- 6Did they ask what the money is for before suggesting anything?
- 7When you checked one of their numbers yourself, did it hold up?
- 8Do they give you time to decide, without making you feel you will miss out?
Chapter 4 of The Only Difference
Voice
Will they say the difficult thing?
If liberty means anything at all, it means the right to tell people what they do not want to hear.
George Orwell, “The Freedom of the Press”, written 1945, first published 1972
Voice is saying the difficult thing while it is still cheap. The client does not have to agree. They only need to choose with the truth on the table.
From the Test
- 9Have they told you something specific that you could not have found online?
- 10If you ask what they would do with their own money, do they give a straight answer?
- 11Have they disagreed with you about something you were keen on, without being asked?
- 12Once you have committed, will they take your side if the other party lets you down?
Chapter 5 of The Only Difference
Integrity
Who are they when you’re not watching?
In looking for people to hire, you look for three qualities: integrity, intelligence, and energy. And if they don’t have the first, the other two will kill you.
Warren Buffett, repeating an older saying, Columbia University, 1993
Integrity shows where nobody checks: the phone answered in year three the way it was answered in month one, and the truth told when it costs the advisor money.
From the Test
- 13Do they still tell you the truth when it could cost them the sale?
- 14Does what they tell you match what is written in the documents?
- 15Have they ever pointed out a fee, risk or catch without being asked?
- 16Do they speak about their other clients with respect when those clients are not around?
Chapter 6 of The Only Difference
Compassion
Does this advisor know you as a human being?
The secret of the care of the patient is in caring for the patient.
Francis W. Peabody, JAMA, 1927
Compassion is knowing the life underneath the budget: what the money is for, who depends on it, and what the client is not saying. It asks about the life before it asks about the number.
From the Test
- 17Do they know what this money means for your life, beyond the budget?
- 18When you were excited about something, did they help you slow down?
- 19When nothing was happening for a while, did they stay in touch?
- 20Do they know something about your life that has nothing to do with money?
Chapter 7 of The Only Difference
Edge
What you get when you find all five
You can’t do the same things others do and expect to outperform.
Howard Marks, The Most Important Thing, 2011
Edge is what the other five add up to over years, seen from far enough away. It rarely feels dramatic while it is happening: a call returned, a purchase talked out of, a difficult truth said early and cheaply instead of late and expensively.
Edge has no questions of its own. If you answer yes to most of the twenty, you have found a good advisor. Hold on to them.
For the advisor reading this
What I would put on the wall of my own firm, in the order I learned it
- Ask about the life before the budget.The one who reaches the brochure before he has reached the client has failed the cheapest test there is.
- Do the boring part first.Read the document, walk the ground, check the number before you repeat it. Most bad advice is a sincere recommendation from someone who did not know.
- Say the difficult thing while it is still cheap.The client does not have to listen. He only has to choose with the truth on the table.
- Put up your own board.Mine said we did not sell ULIPs. It cost us revenue and brought us the clients worth having.
- Advise them as you would advise your own father or son.Nobody sells his own son the highest-commission option.
- Answer the phone in year three the way you answered it in month one.Nobody will check, which is the point.
And before you close anyone, ask yourself the question I once asked a broker who wanted to work with me, the one he could not answer: would you buy from yourself?
Use it
Put the framework to work on someone who advises you
Twenty simple questions about one person who advises you. Answer yes, no or not sure. It takes about five minutes.