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We have seen a lot of lists of questions you should ask your advisor over the years. They are useful and you should, in fact, ask many of them. The most important question for understanding who you are hiring is usually not on these lists. The question is-What do you do to manage my risk as an investor?
The answer will quickly tell you who you are working with. The “faith advisor” will answer about how you are in this for the long run, how you don’t make a lot of changes if you truly believe in America and in capitalism, etc. They buy into the full faith and credit of the financial services industry and are supported by many experts from the industry (kind of like lobbyists in their approach). On the other hand, the “business advisor” will be able to answer in terms of a process to manage risk as the future unfurls. We suppose there could be a third group who are not able to answer coherently on either side of this issue. That is an answer worth hearing and probably tells you to move on in searching for the “right person”.
The choice is yours. For us, we have a strong belief that you should manage your investments much like you manage a business. You need a process, you need beliefs, and you need to evaluate and adapt as you move forward. A business which does not do this is unlikely to succeed over the long haul.
A good example might be a successful local coffee shop. The owners would have founded their business on a set of core beliefs and would have developed successful processes to implement their belief system. Now, imagine that they hear that that national coffee chain (yes, that one!) is going to open up in the next block. They could ignore this fact and rely on their faith in their current business model and clientele. A better course of action would be to assess the risks (and opportunities!) that will arise from their new competitor. Which business model would you choose and which business do you believe is more likely to survive?
You can (and we believe must) apply these same principles to your investment portfolio. You need to develop a set of beliefs, and then implement them as processes, but also make an ongoing assessment of risks and opportunities an important process which loops back to your portfolio design. In our opinion, investing with faith only is no way to run a portfolio. Or a business.