What Should Your Advisor Know About You?

MARK RIEPE: I'm Mark Riepe. I head up the Schwab Center for Financial Research, and this is Financial Decoder, an original podcast from Charles Schwab. It's a show about financial decision-making and the cognitive and emotional biases that can cloud our judgment.

When we think about meeting a financial advisor for the first time, you might imagine that the advisor will ask a bunch of questions. And that's true. But that first conversation is a bit like an iceberg. The information gleaned is important, but there's so much more under the surface of that initial conversation that needs to be explored.

Today we're going to explore what your advisor should know about you, and it isn't just facts and figures. This is a deep dive into what really matters. It not only helps your advisor to serve you better, but it fosters trust and builds the relationship. 

I'm joined today by a previous guest on the show, Stephanie Shadel, a senior wealth advisor at Schwab Wealth Advisory. With 15 years of experience, Steph is a Chartered Financial Analyst, CERTIFIED FINANCIAL PLANNER™, Certified Private Wealth Advisor, and Certified Wealth Strategist, all of which make her well suited to discuss today's topic, what your advisor should know about you.

MARK: Steph Shadel. Welcome back to Financial Decoder.

STEPHANIE SHADEL: Thanks, Mark. Great to be back.

MARK: All right, we are going to be talking about here what your advisor really should know about you so that you can really get the most out of that relationship. So maybe we can just start with the basics. When you first sit down with a client, what are the initial items you cover?

STEPHANIE: So when we first sit down, we're looking at more of the quantitative aspects of a client's financial situation. So hard numbers, income, expenses, debt, their current investments, retirement plans. And a lot of this has to do with some of the regulatory elements called "know your client." And so our role is to get to know the client the best that we can. And that means collecting a lot of that just kind of basic quantitative aspects. 

MARK: What sort of upfront homework can someone do to prepare for that initial conversation with their advisor so that they're getting the most out of it and you're able to get a good picture of who you're speaking with?

STEPHANIE: Well, and it can kind of depend on the individual. I have some clients that have that type A personality where they have taken the homework very seriously, and it come to the meeting with their income statement, their balance sheet, creating their own worksheets of information, bringing spreadsheets, right? And that's great. We're starting off with all of that comprehensive information. 

But then there are other folks where even thinking about investing and advice is very new to them. They're ballpark figures, or not quite sure where to get all that information, and that's perfectly fine as well. And so we might start with like a baseline or preliminary plan and then as we get to know each other we'll be adding to that plan and making it much more comprehensive and relevant.

MARK: Yeah, it's probably unreasonable to expect that for something as complicated as the financial lives of many people. You're not going to get through everything necessarily in the first meeting. So maybe give me some examples of important details that tend to get left out of those initial meetings that actually would have been good to have known right off the bat.

STEPHANIE: Well, I want to emphasize that this is a mutual relationship, right? And it takes time to build trust. It takes time to build that relationship. And at times, folks may not be comfortable sharing their vulnerabilities and some personal aspects of their lives, like family dynamics, or maybe they're supporting someone in the family that the spouse doesn't know about. 

So it's perfectly fine to say there's a situation I want to bring to your attention, but I want to put a pin in that, and let's address it later as we get to know each other. Because at the end of the day, we're a team.

MARK: Yeah, I like the way you brought up the team analogy. Think that makes a lot of sense. And I think it's probably obvious to most people that it's really important for all teammates to be on the same page. So maybe you could share some of the questions or prompts that you're using to get to know your clients better, to get them more comfortable just talking about their situation, especially when they're perhaps new to an advised relationship.

STEPHANIE: What I think is imperative to understand is how clients have reacted to market downturns in the past. So during the dot-com bubble or the financial crisis or the pandemic or the more recent bear market in 2022, what did you do? Did you take action or not? Were you tempted to take action? Was the volatility keeping you up at night? That helps me then really understand what makes them think and what their true concerns are if they're able to explain, again, kind of how they've handled past downturns.

MARK: That conversation is probably a little bit easier right now as we're recording this. The market's gone through a big drop and then started to recover. So perhaps those memories are very fresh in people's mind. Do you feel that, when it's more recent, that you get sort of better answers than if they have to really kind of you know look back several years?

STEPHANIE: Absolutely. The last couple months, it's very fresh in everyone's mind given the significant gyrations and change in direction in a single day, multiple days in a row, definitely creating the anxiety, and it's a great way for us to learn more about, especially newer clients obviously, how they may react to such instances in the future. Because everyone expects when they start investing that the market's going to go up. And yeah, yeah, it goes down sometimes, doesn't last long.

But it's different when you're feeling it, when you're actually going through the motions. And so in volatile times like this, the silver lining is it's a great way for the client and the advisor to really get on the same page if they weren't already.

MARK: Yeah, if those experiences are too far back, it's entirely likely, like all of us, we might misremember exactly how we felt when we were in the thick of it.

STEPHANIE: Or maybe they weren't even retired yet, right? It was just their 401(k). They weren't anywhere near retirement at that stage. And so we do tend to change how we feel about risk over time, especially if there's major changes in your life.

MARK: Yeah, that's a great point. Markets change, but as you just mentioned, people change. So as the relationship, as the teamwork progresses, what's the best way for you to kind of keep track of changes that are going to affect the advice that's being given? What's the best way for the clients to let you know of changes, even if maybe they have an impact on the plan, maybe they don't have an impact on the plan. What's the best way to have that dialogue?

STEPHANIE: I think it's imperative for there to be an open line of communication between the client and the advisor. Even if you don't think what may be coming up or a change in your life is important, it could be important. It's still something for the advisor to understand because it's another data point for us to get to know you better, and how you may react, and even just what you might be thinking about doing in the future. Even though it might be a low probability now, it might be something we want to incorporate into the financial plan.

MARK: I'll get back to my conversation with Steph in a minute, but before I do, I want to make the somewhat obvious point that even the best advisor in the world is not a mind reader.

They're only as good as the information you provide. So if something comes to mind while you're talking with your advisor, and you brush it off as not important, err on the side of saying something. 

It's a little like going to the doctor. Maybe you're feeling a slight pain now and then, but it's not ruining your day, so you don't think it's important. But your doctor would like to know. 

It's the same with your advisor. It's better to over clarify. A good advisor will ask questions to make sure they're getting the complete picture. This works in reverse as well. A good advisor will explain a strategy or idea to you. 

If you don't understand, ask questions. Good advisors love questions. They want their clients to understand what's happening with their money. Remember, the advisor works for you. It's your money, so let that thought give you the courage to ask. 

Finally, keep in mind that advisors are fallible, and predicting the future ain't easy. If the advisor doesn't bring it up, feel free to ask about the risks involved in any recommendation. In other words, ask the "What could go wrong?" question. Also, don't be afraid to ask for more information. You don't want to fall prey to analysis paralysis, but if there's a piece of information you need to make you feel comfortable to make a decision, go ahead and ask for it.

And now let's get back to Stephanie, who has more great tips on how to help your advisor help you.

MARK: Steph, the premise of this episode, to a certain extent, is driven by the fact that some people, they don't know what to share. They don't know what information the advisor needs. But some people, also, maybe they're actively holding back critical information, even though it's going to help you do your job better. Why do you think that happens? I mean, do you see both types of behavior occurring?

STEPHANIE: So we're all human, and we're not always comfortable sharing our vulnerabilities. Maybe you're trying to get out of debt, but you're embarrassed, and you just don't want to share that. But from an advisor standpoint, that's absolutely something we want to help you with. We're the one that is there for you to help you get out of debt. 

But I've had instances where a client just was too embarrassed or even to tell their spouse potentially. And so it absolutely happens, or maybe it's a family dynamic that is a little uncomfortable, and they're just not ready to discuss it. 

There might be a situation where the client isn't ready to talk about a special needs child. It's very personal and they're just not comfortable talking about it yet. But that's really important to understand because we want to ensure that child is taken care of, that they have the funds if something were to happen to the parent. 

And so that's where talking through some of the estate-planning concepts and different corporate trustees and such that could really alleviate the stress of the parent. Because that's something that could really keep them up at night if they're worried if they pass away, what's going to happen to my special needs child? Who's going to take care of them? Who's going to make sure that they have a roof over their heads? And so those are kind of things that tend to be very personal in nature, and we're not always comfortable sharing with someone new.

MARK: So Steph, you're really kind of getting at, in some of those examples, what goes on in the minds of clients as they're starting to make decisions. Do you come across any common behaviors that may inhibit sound decision-making?

STEPHANIE: I'd say actually a lot of times the most common is endowment effect. If we already own something, we tend to have an emotional attachment to it, and it's harder to let it go. A client will treat an asset or money they receive differently based on how they received it. 

Because a lot of folks, they really think they're being objective, and they're looking at all the facts, but they're really looking at things with a very rosy lens because it was something that they picked or something that they've held onto for a long period of time. Or this particular stock helped fund your kids' college, right? And so it's a very emotional connection. The stock has done so much for you and your family potentially. 

And so it's really hard to kind of overcome that emotional attachment and kind of focus more on the facts and the objectivity and the fact that there are other opportunities out there. You know, we have to consider the opportunity cost. 

Also, loss-aversion. People don't want to harvest a loss even though there could be a tax benefit to it, because they just don't want to realize that loss. From their frame of reference that's horrible. 

And sometimes the client may not even know they have those concerns until it actually happens. They think they can handle the volatility and the downside risk, that they're very comfortable being more aggressive. But then when it actually happens, they realize, "OK, no I'm not comfortable with this.".

MARK: My guess is that some of these biases and effects that you were just listing, probably some are more common in some situations than others. Is that something you experience?

STEPHANIE: Absolutely. So a lot of times if a client picked a stock, they don't like me bringing up selling it or trimming it. And half the time I'm never actually just getting out of a position entirely. It's more if it's well rated, good fundamentals, it's sitting near peaks, but maybe the valuations are a bit frothy. There's some volatility we're anticipating, maybe some macroeconomic effects that we're concerned about. 

Maybe it's a good time to take a little bit of that risk off the top, trim back some of those gains, but that's not something the client is comfortable doing. This is their baby. It starts out as confidence. "I know this company. It's always done well," but then it ends up being an emotional attachment. And so my role is to really try to open their eyes to other opportunities and to consider what are we missing out on by not considering these other options.

MARK: Yeah, know, from your standpoint, from my standpoint, you know, money's fungible, and don't fall in love with the stock because it doesn't love you back. You know, it can't love you back. But, you know, not surprisingly, many people have a different perspective on this. 

So when you're in the thick of it working with a client, what are the methods that you find are most effective to navigate some of this? And, you know, they've got their perceptions, and you've got your perceptions as a professional. How do you bring those together?

STEPHANIE: So running that financial plan and kind of adding that objectivity to the conversation. I'm pretty direct. So even with a new client, I'm going to go over my so-called observations of the portfolio because I need to understand why do you have, maybe it's a lower rated stock, or why do you have 20% of your portfolio in this particular stock? I need to understand the why. And then that will help me gauge how to address it from a risk standpoint in the portfolio.

Having that awareness of your biases is very important, but a lot of times clients won't realize it until we start bringing it up and start exploring why they're holding a particular position. And the reason we're asking is, again, there could be a better opportunity that may better fit the client's current situation as well as help meet their goals. 

And so we'll go through, maybe it's a particular stock. What are the fundamentals? What's the outlook for the company? What are the price targets? How does this fit in the portfolio? Do we have too much of it? And does having too much of it actually put your overall financial situation at risk?

MARK: That makes sense. Last question for you. What insight can you offer those individual investors, what insight can you offer to them about going about establishing the kind of trust and accountability with their own advisor?

STEPHANIE: I'd say understanding what you want out of the relationship. How engaged do you want to be? Do you want to be driving the car or maybe in the backseat listening to music? How involved do you want to be? Do you want to learn? Some folks just want to hand it off and just want to get updates maybe a couple times a year and want reassurance that they're going to be OK. 

Others want to be right down in the trenches, making decisions, understanding the rationale for each and every move. And it's important for the advisor to understand, again, what the client really wants out of the relationship, because it is a relationship. It's OK to feel vulnerable and share things with your advisor because it's going to help them help you in a much more productive way.

MARK: That's right. And at the end of the day, there's got to be an element of trust and communication. That's really the foundation of it. Is that the way you see it?

STEPHANIE: Absolutely. And it takes time.

MARK: Steph Shadel is the senior wealth advisor with Schwab Wealth Advisory. Steph, thanks for being here today.

STEPHANIE: Thanks for having me, Mark.

MARK: Steph had some great insights that you can use next time you talk with your advisor. If you'd like more information on advised investing at Schwab, there's a lot on Schwab.com.

You can find an advisor who can help you achieve your financial goals—especially now that you know so much about how to have productive conversations with them. You can also find all kinds of information on our wealth and investment management solutions on the Schwab website. As always, we'll include links in the show notes.

On a completely different topic, if you're a golfer or a fan of the game, you might want to listen to another Schwab podcast. It's brand new, and it's called Invested in the Game. Host Mason Reed talks with golf entrepreneurs, golf pros, and course architects, to name just a few. 

We're done here with this episode and this season of Financial Decoder. Thank you for listening, and we'll be back this summer with more episodes. If you'd like to hear more from me, you can follow me on my LinkedIn page or at X @MarkRiepe. That's M-A-R-K-R-I-E-P-E.

And if you like the show, please consider leaving us a rating or review on Apple Podcasts or comment on the show if you listen to it via Spotify. We always like new listeners. And if you know someone who might like the show, please tell them about it and how they can follow us for free in their favorite podcasting app. 

For important disclosures, see the show notes and schwab.com/FinancialDecoder.