The following is a guest post from Neal Frankle, a Certified Financial Planner in Los Angeles who owns the financial blog Wealth Pilgrim. Neal has been a financial planner for the past twenty-seven years and is writing this article on Consumerism Commentary to share what he has learned from his experiences with clients over these three decades.

Even if you’ve been pursuing in your career for only a couple of years, you’ve already learned a great deal about your profession and people in general. I’ve had the same experience. Twenty-seven years ago, one of the small business ideas I had was to become a financial planner. And over that period, I’ve learned quite a few lessons about Wall Street, my clients, and myself.

What I’ve learned about Wall Street

Everything you hear about Wall Street isn’t true –- but most of it is. I’ve found that the higher up you go in management, the more detached and greedy “the machine” becomes. In fact, I’m astounded by the depths to which some firms go to enrich themselves at the expense of investors. Having said that, I must say that I’m not sure this attitude is any different from other industries.

Since I spent very little time working in corporate America I don’t know this for sure, but my guess is that all large corporations encourage political jockeying and self-serving behavior. Wall Street is no different. Take the index annuity product as an example.

When these babies were first introduced, they were some of the best investments I’d ever seen. They allowed investors to participate in growth when the market was good and protected investors from declining markets. But over time, the fat cats got wise. They realized that they could play with the way those indexes were calculated and thereby keep more profit for themselves at the expense of investors. Now, index annuities are terrible investments. This is just one of many examples.

I’ve also learned that competition sometimes works, and the mutual fund industry is a great example of this. Mutual fund fees and expenses have been dropping relentlessly over time as competition increases from Exchange Traded Funds. In short, in the debate between exchange-traded funds and mutual funds, ETFs and index funds are wining hands down.

Last, I learned that the fee structure an advisor uses says a lot about the relationship clients are going to have with the advisor. This may be self-serving because I’m a fee-only advisor. Fee-only advisors are compensated if and only if they serve clients over time. That doesn’t mean they’re going to do it, and it doesn’t mean they know how to do a good job or that fee-only advisors are qualified. Anyone can become a financial planner.

Over the long-haul, advisors generally don’t stay in business if they don’t deliver. That’s not the case with salespeople earning commissions. They get paid up front, and there is a disincentive to serve clients. Not every commission-based advisor is a shyster of course. But when someone is compensated to sell rather than advise, that’s what they’re going to do.

My experience is that commissions put advisors and clients on opposite sides of the table. Generally, the reverse is true when it comes to fee-based planners. Again, this is a generalization and there are many exceptions on both sides of the equation, but for the most part, I’ve experienced this to be true.

What I’ve learned about clients

I’ve learned that people dislike losing money more than they enjoy making money. This aversion to losing money is unfortunately and paradoxically the very reason why many investors get wiped out. If someone has no ability to absorb investment losses, they’ll do one of two things. One potential response is to stick all the money in the bank for protection. Over time, this is a losing proposition.

The other response is to invest emotionally. When the market feels good, this investor becomes aggressive. When the market feels scary, this person goes into cash. This is a perfect recipe for disaster, of course. It’s called buying high and selling low, the opposite of how someone succeeds with investing.

I don’t believe in the buy and hold strategy. There are other strategies that are more market-sensitive, and these can help investors mitigate losses and take advantage of good opportunities. That’s how I manage money, but the method I believe in is far from perfect. It is a system and not an emotional reaction. This, like any other investment methodology, has its flaws.

Some people will tell you me that they want to be aggressive investors. That may be true — until the market turns against them. Just as I need constant education in areas I know little about, some people really need to be reminded frequently about the trade-off between risk and reward. Client understanding and education is not a one-time event.

Few clients have a financial plan and even those who do rarely execute it. They aren’t clear on their objectives and they don’t know how much they’ll need to reach their goals. (Do you know how much money you need to retire?) This is a real shame. I’ve seen people with very low salaries living their dream life because they formulated a plan and executed it, and I know multi-millionaires who are absolutely miserable and live in fear. That’s because they don’t understand the basics of financial planning and refuse to learn it.

What I’ve learned about myself

I’ve learned a great deal about myself over the last quarter century as a financial planner. The most important lesson I’ve learned is that I can’t do better than my best. I used to be harder on myself than any of my clients were. In fact, during the 2008 market melt-down, clients called because they were worried about me, not their money. While my clients’ investments happened to be performing better than the market that year, we still lost money. I didn’t like that and I felt as though I had let my clients down. I was mistaken to feel this way, but I felt that way nonetheless.

I’ve learned that if I did my best, that was good enough. If it wasn’t good enough for a client, that was the client’s problem, not mine. I’ve learned that most people are good, honest and responsible. Let me tell you, when you deal with a person’s money you really get to know them. As the years pass, I’m more and more impressed by the inherent good I see in others.

I have no plans to retire. I enjoy what I do too much. I believe that the future has a great deal of opportunities ahead, and its share of challenges, as well. The most important thing I’ve learned is that I have no idea what’s coming down the pike. That’s what makes being a financial planner so fascinating.

What have you learned about yourself, others and your profession over the last several years? Were you surprised?

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