When your finances are in a place where you need professional advice, where do you turn? Do you look for an expert?
When seeking out an expert for help, it's often hard to tell whether someone is a truly an expert, or whether they're selling you a bill of goods. So how do you figure out whether someone truly has your best interests at heart?
We discussed the topic of financial experts on the Money Mastermind Show, live at the FinCon Expo in Charlotte, North Carolina. We had participation from the live audience as well, telling us their favorite financial experts, and talking about how to know when someone is truly an expert. View the show here:
- What Makes Someone An Expert?
- The First ‘Experts' We All See: Our Parents
- Choose Your Experts Carefully
- Why Do We Look To Experts For Advice?
- What Does Bad Advice Have In Common?
- Experts Are Often Wrong, Or Misleading
- What To Look For In A Financial Expert?
- Think For Yourself. Don't Turn Your Brain Off
What Makes Someone An Expert?
If you turn on the television, go on the internet or listen to the radio you're bound to hear someone who is known as an expert in their field – giving advice to viewers, listeners or readers.
Historically, an expert was referred to as a sage (Sophos). The individual was usually a profound thinker distinguished for wisdom and sound judgment. – Wikipedia
So the question is, what makes someone an expert?
Typically an expert is someone that has some specialized skill or expertise, and are well versed in that area of knowledge. Their peers and the public in general usually recognize them as being an expert in their area.
Traits of an expert
Whether it's in finances, or fitness, an expert typically has:
- Extensive knowledge: They know a lot on their subject of expertise based on research, experience or occupation in a particular area.
- Formal education: They may have advanced degrees in their area of specialization.
- Licenses, degrees or certifications: They may have professional certifications in their area. For example, in financial arenas they may have a CFP, CFA, CFS, CPA or other specialized certfication.
- Working knowledge and experience in the subject area: They will usually have a good knowledge of the topic area because of working experience in the field, research they have conducted, etc.
- Published works that stand up to scrutiny: They will often be a recognized expert because of their published works that have stood up to peer review.
- People rely on them for their opinion in their subject area: A lot of people rely on them for their advice, and reviews of their work is generally positive.
So experts are people who have a lot of knowledge that has been gained through personal experience, through schooling and certifications, and through research that they have conducted. They know a lot and are often sought out for what they know.
The First ‘Experts' We All See: Our Parents
For many of us the first ‘experts' that we see – are our parents. They know a lot more than us about just about every topic imaginable, they have more education than us, and we rely on them for their opinion.
With our parents being the first experts in our lives, it can be a good thing – or a bad thing. They can give you a positive worldview and positive framework to work from, or they can leave you with a skewed view that leads you down the wrong path.
Wizard of Oz Effect – someone else always knows best.
If we don't at some point begin the process of learning things on our own, we can go down a path where we just defer to “experts” in our daily lives, because it's easy.
Author David Freedman in his book “Wrong: Why Experts Keep Failing Us — and How to Know When Not to Trust Them” talks about the “Wizard of Oz” effect. Basically, from a young age we're taught to think that someone else always knows best.
First our parents, then our teachers, and so on. The fact is there is always someone smarter than us, but the “the key becomes, how do we learn to distinguish between expertise that's more likely to be right and expertise that's less likely to be right?”
Choose Your Experts Carefully
Mark Twain defined an expert as “an ordinary fellow from another town”
Far too many people are often accepted as experts simply because they call themselves one, or because they saw an area of need and decided to fill it – without any of the requisite knowledge. To become an expert, you really need to have more experience in an area – so that you know what works and what doesn't. You need to have learned from your own mistakes, and the mistakes of others – and to have learned over time how to improve.
Danish scientist and Nobel laureate Niels Bohr defined an expert as “A person that has made every possible mistake within his or her field.”
The danger comes in relying to heavily in experts because they're new, novel or because their ideas sound so amazing at first blush.
Will Rogers described an expert as “A man fifty miles from home with a briefcase
If you're making decisions based on what an expert has told you, make sure that you're actually following up on their advice, figuring out for yourself if it actually makes sense.
Why Do We Look To Experts For Advice?
We look to experts for advice because:
- We're unsure of our own level of knowledge
- We are confused by a subject area
- We've done our own research but would like confirmation.
- We've been told that there is always someone who knows better than us – wizard of oz effect.
Looking for advice is fine, but don't fall prey to bad advice, just because you're unsure of yourself. So what does bad advice look like?
What Does Bad Advice Have In Common?
According to author David Freedman, bad advice usually has this in common:
- It tends to be overly simplistic.
- It comes across as being definite, universal and certain.
- It tends to really resonate more than good advice. (Often the bad advice we're given resonates more because it's more simplistic, certain and it's what we want to hear. Often they're selling us a bill of goods and are good at marketing. Often the good advice isn't as easy to hear)
Good advice tends to be less certain, couched in terms that explain it is for certain situations or people, and that is open to learning and change.
Beware when someone gives you an answer that sounds too good to be true, or is explained in ways that makes it sound like a sure thing.
Experts Are Often Wrong, Or Misleading
about two-thirds of the findings published in the top medical journals are refuted within a few years. It gets worse. As much as 90% of physicians' medical knowledge has been found to be substantially or completely wrong. In fact, there is a 1 in 12 chance that a doctor's diagnosis will be so wrong that it causes the patient significant harm. And it's not just medicine. Economists have found that all studies published in economics journals are likely to be wrong. Professionally prepared tax returns are more likely to contain significant errors than self-prepared returns. Half of all newspaper articles contain at least one factual error.
These are experts that we rely on. They make mistakes, and they're often wrong. So what are we to do?
Go in with a grain of salt and be ready to think critically about the advice that they're giving.
Not only are they sometimes wrong, but they're also often coming in with ulterior motives.
What To Look For In A Financial Expert?
What do you look for in an expert? Do credentials matter?
I look for someone who has all of the pre-requisites mentioned above – knowledge and training in area of expertise, education, designations, real world experience and published works that are respected. In addition I also look for someone who:
- Can admit their mistakes, and has learned from them.
- Who will give advice but will couch it in a way so that people know it may not be suitable for everyone.
- Someone who truly wants to help.
- Proven track record.
- Someone who gets me thinking for myself. A teacher not someone who just tells me what to do.
Think For Yourself. Don't Turn Your Brain Off
One of the biggest dangers of listening to an expert in my opinion, is that it gives you the excuse to not think for yourself. In fact, studies have shown that when given an expert opinion, brain activity often shuts down in a way that shows the person isn't thinking for themselves.
Author David Freedman:
people have actually looked at this question of what happens to brain activity when people are given expert advice, and sure enough, you see that the brain activity dies out in a way that suggests the person is thinking for themselves less. The brain actually shuts down a bit in the face of expert advice. When we hear an expert, we surrender our own judgment.
I think the key when listening to experts is to make sure you aren't just taking their advice at face value, and that you're actually thinking critically about it.
Why are they advising I take this course -and is it really the best course for me?
Does my situation need something else?
Should I be doing more of my own research, and weighing the advice of other experts?
What things do you look for in an expert? Are you more likely to take someone something says at face value without thinking about it if they're advertised as being an expert?