You Advise People About Their Money – But You're Broke!

There's the old joke about financial advisors who come to the office by bus to advise clients who come to meet in their Mercedes.

If we had as criteria that individuals who advise others would need to be financially successful themselves, how many would qualify?  Based on my observations, there would be far fewer advisors in business.  So although you may have a license to practice, do you have the right to advise based on your own personal financial success?

You may first argue that you are younger than your clients and they have had more years to accumulate wealth.  Good news, some very smart guys (Thomas J. Stanley and William D. Danko in The Millionaire Next Door) have already designed an age-adjusted measure of successful wealth accumulation; in short it is 10% X Age X Income = Expected Net Worth.

So let's say you are a 35-year old advisor with a $100,000 income:

10% x 35 x $100,000 = $350,000 expected net worth

If you are above this level, then maybe you should qualify as an advice-giver and should be de-licensed if below this level.

If you "fail" the net worth test, you can place yourself in one of 2 categories:

1. Those that are rationalizing, justifying and developing a list of excuses as to why they fail the test.  These people may also have reasons why the test is not legitimate.  Never mind that the developers of the test have spent years of hard intellectual work getting a Ph.D., doing hundreds of hours of research about people who accumulate wealth and are much smarter than you and I. People who justify and excuse themselves from failure are not winners.  Rather than have results, they prefer excuses.  People like this should definitely not be advising others as they have some self-awareness work to do.
2. Those people who look at their failure to achieve financially and start thinking about what changes they need to make.  These people are winners.  They focus on weaknesses and how they can be corrected rather than justified.  These are people who build themselves and have the potential to build others.  This is the mark of a good advisor.

I am certain this post will incite plenty of comment, especially negative comment from the folks in category 1 above.  But let me suggest that rather than criticize this post (does criticism ever forward anything?), you suggest why we as a society should allow people who don’t have financial success to advise others about their finances?

Do we accept advice on marital fidelity from an adultering minister?  Do we take credibly the advice on diet from a morbidly obese doctor?  Would you go to an accountant who hasn't filed his own tax returns on 3 years?