Good Advice

Financial Planning: The Importance of Asking Why?

Good Advice

“Why?” It’s the question that our children often use and abuse to the point of our own mental and emotional capacity. While we end up resorting to the very popular choice of last resort -“cause I said so” – I often appreciate curiosity and perseverance of children. In fact, I recommend the same level of inquisition to investors when it comes to understanding what is going on your with money and other professionals when it comes to the recommendation they are making to their own clients.

Many investors understand that having a financial plan is important. It is a blueprint for how our very important resources will grow and be utilized so that we have the freedom to live the life that we want to live. Unfortunately, I often find myself swimming upstream against a constant stream of conflicts of interest that flood our industry. Prioritizing salesmanship above fiduciary duty has bred both distrust and devastating financial consequences for many Americans.

This is not because of the choice of investment professionals, for the most part. These noble stewards of our financial best interest are often trained to perform their duties unaware of possible unintended consequences. Setting up a pay structure that incentivizes selling particular insurance products, mutual funds, or other unnecessary services or even retirement plans with aggressive revenue sharing practices have primarily served the interest of others and not the ones we are hired to assist. After awhile, many of us start to feel the uneasiness of this structure as we are constantly put in situation where we must choose between our own welfare and our clients’.

I started asking the question “why” after I had my own unsuccessful investing experience with someone I thought was serving my best interest. I call this my “$30 million investment lesson.” What I discovered was both inspiring and frightening at the same time. Financial industry heavyweights such as Burton Malkiel, Jack Bogle, and Charles Ellis were all providing substantial evidence that the vast majority of professional money managers had underperformed a simple market index. But this was and still is the strategy that many recommend for their clients even though there is now a mountain of evidence refuting its merits.

My simple inquisition turned into a snowball of investment education that inspired me to eventually start Index Fund Advisors, Inc. I wanted to prioritize investment education as a core business principle so that clients could also be inspired to ask the question “why?” Why do most active managers fail to outperform their benchmark overtime? Why is it in someone’s best interest to buy and hold a globally diversified portfolio of index funds? Why did we choose the particular asset allocation for our 100 IFA Index Portfolios the way we did? I welcome all questions that our clients and prospects have because that builds the right type of trust that is necessary for a successful investment experience.

If you are an investor and you do not fully understand why your financial planner has recommended a particular insurance product or mutual fund, I challenge you to ask “why?” If you are an investment professional, I also challenge you to ask the same question in regards to your own recommendations. If you do not have a confident answer as to why you invest your money the way that you do, then I urge you to begin your own investment education journey.  


About the Author

Mark Hebner

Mark Hebner - Founder, Index Fund Advisors, Inc.  

Founder and President of Index Fund Advisors, Inc., and author of Index Funds: The 12-Step Recovery Program for Active Investors. He is a Wealth Advisor, with an MBA from the University of California at Irvine and a BS in Pharmacy from the University of New Mexico with a specialization in Nuclear Pharmacy.