Because we weren’t taught much about money in school, most of us run around naked as adults, before embracing the first person who hands us a towel to drape over our streaking bodies.

It’s best not to go out in the buff in the first place. When looking for a financial planner, don’t be the exposed one. Put yourself in a position of power. It’s the least you can do for yourself.

For starters, the industry is filled with really personable people. If they have a reputation for being “successful” that means they smile nicely, return phone calls, they’re really polite, and they’re walking epitomes of Dale Carnegie’s masterpiece, How to Win Friends and Influence People. Your community members will probably love them, they’ll come with “touchy/feely” referrals, but none of them will likely accompany a suitable benchmark of performance—one that really determines whether an advisor is a “nice guy/gal” or a true investment professional. It’s a good thing we don’t measure airlines the way most people measure financial planners:

“Oh Gertrude, yes, everybody loves them. They’re so kind when checking in, and they serve the best onboard peanuts. Too bad they dropped us off 1000km from our destination.”

Here’s the rub. Most people, when hiring an advisor, don’t have a clue what their destination is supposed to look like anyway. So tasty peanuts and fluffy on-board blankets with beautiful accompanying smiles more than suffice. And if financial advisors took a page out of Richard Branson’s Virgin Airlines, they’d offer on board massages that would really elevate business.

But what should you be looking for?

This is going to sound awfully selective, but the first thing to look for is gray hair. Sorry, but a financial advisor in his/her 20s is never going to cut it. You need to find someone who’s both qualified and old enough to remember Roger Moore, On Golden Pond, Natalie Wood’s mysterious disappearance, and 18% mortgage interest rates.

Show me yours.

Again, if it’s your personal life savings we’re talking about, you have to take the selection of a financial planner with at least as much seriousness as you’d take when hiring someone to re-model your kitchen. But too many people put far more thought into hiring a carpenter. With a carpenter, the work is transparent. You can see the work that they’ve done in the past. With an advisor, the work is opaque, and very few people know how to recognize success or failure. Instead, clients talk about fluffy blankets, and gush how happy they are

Here’s the benchmark—The Airport Destination You Need to Compare To

You’ll need to make a comparison with a globally weighted basket of stock and bond index funds. Don’t give up on me if that sounds Greek. Ask to see your financial advisor’s personal portfolio from 10 years ago, 7 years ago, 3 years ago and last year. All you want are samples of 4 statements. Get them to explain what they owned and why. And calculate what their returns would have been, based on what they owned. As much as you might want to select a planner based on “feel” I don’t think financial planners should be selected the same way you’d pick a sweater. Instead, you’ll need to make a long term, hard core comparison.

Let me explain why Warren Buffett says this:

“Full-time professionals in other fields, let’s say dentists, bring a lot to the layman. But in aggregate, people get nothing for their money from professional money managers…The best way to own common stocks is through an index fund”

The stock and bond markets dish out money over time to people who own them. Own a representation of everything the stock and bond markets have to offer, and you’ll reap the benefits of what they give out. But few people make anything close to what the markets generously offer because of middlemen who skim from the proceeds.

Investing to beat finance professionals is really simple. Here’s the recipe:

  1. Buy a total stock market index fund representing your home country stock market
  2. Buy a total international stock market index fund representing the global markets
  3. Buy a bond market index fund

If you’re lucky enough to have a decent pension coming, ensure that the bond market fund makes up about 1/3 of your total portfolio. Without a pension, make sure that you have a bond allocation that’s roughly equivalent to your age.

It’s so shockingly simple. But I have yet to see an investment account run by a financial advisor who performs even close to this over a lengthy period of time. Give up just 2% annually over an investment lifetime, and you’re giving up more than half your eventual nest egg, come retirement. If someone invested $1000 in the year 2000, it should have grown at least 34%, with no money added, by 2010—despite the hammerings that the markets have taken over the past decade. Here’s an example of what the markets have dished out, and why you should be at least 34% ahead of the decade game: Check the Historical Performance Table.

The world’s strangest industry

Strangely, the financial advisory industry lacks accountability because too few people know what kinds of questions they need to be asking.

That’s why Jack Meyer,  the head of Harvard University’s endowment fund says this:

“The investment business is a giant scam. Most people think they can find fund managers who can outperform, but most people are wrong. You should simply hold index funds. No doubt about it.”

But there are advisors who do the job admirably

They offer advice, and you pay for that advice. You bring out your chequebook and cut them cheques, rather than allowing them the “ease” of taking money out of your account. For an upfront fee that you’d place on the table, they’ll assist you with financial planning, college savings plans and taxes.

Find one of these advisors, and then ask them about their money. You can’t afford not to.