Transparency. I think most of us would agree that it’s desirable for individuals, businesses, and governments. Yet embracing or claiming transparency is much different from delivering it. It even seems at times that loudly touting transparency may be a red flag that it may not be demonstrated. The proof is in the behaviors and the actions rather than the words.
Transparency isn’t the same as honesty. Transparency is telling somebody what actually is, what you’re actually thinking, or what you might say if there were no fear of consequences. It’s communicating what is reality. “Yes, I overcharge my clients and lie about my income on my tax return,” is an example of being transparent with the truth about dishonest behavior.
Honesty, I think, is sharing something that you believe is true. But if you don’t share something, that doesn’t necessarily mean you’re dishonest. An advisor or other professional, for example, at times may not reveal every detail while still acting with complete honesty and integrity. And there are certainly “TMI” situations where complete transparency is unnecessary or inappropriate.
Transparency and honesty are both necessary ingredients in establishing trust. This is especially true when it comes to finances. Can you imagine a scenario where you give somebody your life savings to manage and advise you on, yet you don’t trust them? Or where you are open and emotionally vulnerable about financial issues with a therapist that you don’t feel safe with?
One problem, of course, is that the perception that someone is trustworthy does not always mean that they can be trusted. Persuasive marketing is no guarantee of integrity. This is why, as a potential client, it’s in your best interests not to simply rely on what a financial advisor or financial therapist says about transparency. Instead, it’s wise to examine what they do and how they are compensated.
With financial therapists and therapists in general, this is often easier because the compensation model is typically a fee for services. The Financial Therapy Association requires that their certified financial therapists conduct the financial planning aspect of their services on a fee-only basis.
When it comes to financial planning, it’s a different scenario because there are so many different compensation models. Someone calling themselves a financial advisor can be compensated by fees on the sale of financial products, by various combinations of commissions and fees for services (often called fee-based), and solely by fees for services.
Fee-only financial planners have the highest bar when it comes to transparency in disclosing their fees. Some of this is regulated by the SEC. In most cases there is a high level of inherent transparency with fee-only financial planners who collect no commissions.
Fee-based planners are more problematic. The term itself is not transparent. They need to disclose that they receive commissions, but there’s no way for the consumer to know how much those commissions are going to be without asking a lot of very specific questions. This includes asking the advisor to disclose, in writing, how much of their company’s gross income comes from fees and how much comes from commissions.
Yet typically, we don’t ask these probing questions that are so important to our financial wellbeing. We aren’t comfortable asking. We don’t want to hurt someone’s feelings. Underlying all of this is the fear of rejection, the need to be accepted. As a result, too often, consumers routinely entrust their life savings to people who are not transparent or honest. Who are not trustworthy.
I encourage you, instead of relying on someone’s verbal promises, to do some investigating and have the courage to ask the hard questions. In short, to trust yourself to look out for your own financial and emotional wellbeing.
Check out The Financial Therapy Podcast by Rick Kahler concerning this topic.