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Should We Treat Financial Advisors More Like Doctors?

“Whatsoever house I may enter, my visit shall be for the convenience and advantage of the patient; and I will willingly refrain from doing any injury or wrong from falsehood, and (in an especial manner) from acts of an amorous nature, whatever may be the rank of those who it may be my duty to cure, whether mistress or servant, bond or free.” – The Hippocratic Oath

A big debate is heating up in the world of financial advice over what a “financial advisor” actually is. Are they brokers? Are they fiduciaries?  Are they performance based asset managers?  There isn’t a clear distinction there because “financial advisors” wear lots of different hats at different times. I often don’t even know what to call myself. I give financial advice. I manage portfolios. I theorize about the monetary system. I pretend to be an economist. I am different things to different people. But one thing I always try to be is a prudent provider of whatever expertise I might have.

Personally, I think we should start thinking of financial advisors as being something more like personal financial doctors.  What do I mean by that?

  • Financial advisors should adhere to a strict fiduciary standard. Doctors must adhere to the Hippocratic Oath. Part of that oath is the quote above which states they will refrain from doing any injury to their patients. I think that advisors should adhere to the same sort of standard. They should always do what is in the best interest of the client and not what is in the best interest of themselves or the firm.
  • Financial advisors (and portfolio managers) are not miracle workers just as doctors are not miracle workers. Like doctors, advisors should be viewed as people who give you prudent and practical advice and help keep you from doing the sorts of things that can hurt you. When your blood pressure is too high your doctor tells you to stop eating certain foods. When your portfolio risk levels are running hot your financial advisor should tell you to rebalance your portfolio in a manner that is in-line with your risk tolerance. When you’re paying more in taxes than you should be the financial advisor helps lower your blood pressure by reducing your tax burden. We are in the business providing practical advice and not performing miracles.
  • Financial advisors should set realistic time frames on your financial health. A doctor doesn’t look at your health and say “well, in the long-term, the immune system tends to outperform most viruses so let’s just assume you can ride out the ups and downs of this sickness.”  But that’s the equivalent of what so many advisors do in the world of finance. We regularly tell people that they can afford to be irrationally overweight high risk instruments just because they perform well in very long time periods. Doctors understand that you have to be more balanced in the way you live your life and treat illnesses. There are times for appropriate intervention and near-term actions. That said, doctors also don’t hold your hand every day. There is a necessarily multi-temporal perspective involved in managing your health and your finances.  A good advisor knows when to intervene, but also knows that too much intervention is probably unnecessary.  It’s wise to think long-term about life, but not in an irrational manner.

Financial advisors obviously aren’t saving lives like doctors do. But financial problems are a leading cause of stress in our lives. And I have to wonder – if more financial advisors started thinking more like doctors would this actually reduce the financial stress that occurs for so many people? My guess is yes.

* No, robots, aka, “Robo Advisors”, cannot adequately do any of the things mentioned above. In fact, I think we should stop calling them “Advisors” at all as that implies some sort of level of personal care that robots cannot and do not provide.