Two different documents get confused in most financial conversations. The plan is the recommendation: put this much here, this much there, take income starting at a certain age. The receipt is the working underneath it. What it costs in dollars. Who gets paid, how much, and by whom. What else was considered and set aside, and why. What the projection assumes, and what happens when those assumptions are wrong.
Deric Ned, founder of Ridgemont Capital, based in Pasadena, California, draws the comparison people already understand: a grocery receipt lets a shopper check the tape against what's actually in the bag. Nobody has to trust the cashier, because the paper settles it. Almost every client who sits down with a financial advisor eventually gets a plan. Almost none get the receipt.
The advisor who hands over that document and wants a client to check it is doing the harder version of the job. The one who says not to worry about the details, that the relationship has been fine for years, is not offering a plan. He is offering a relationship. And a relationship is not a plan.
Here Is What a Receipt Looks Like
A receipt is specific in a way a plan doesn't have to be. Take a $500,000 account charged a 1.4 percent annual fee. That's $7,000 in the first year alone. Held flat over ten years, it adds up to $70,000, or 14 percent of the starting balance, before accounting for what that money could otherwise have grown into. A plan tells a client the fee is 1.4 percent. A receipt tells them it's $7,000 this year, names who receives it, and shows what it totals over time.
The same standard applies to everything else in a plan: what the projections assume, what alternatives were set aside and why, and what happens if the market drops sharply next year. Written down, with the assumptions labeled, a client can hand that document to a CPA or another advisor and have it checked.
Why Most People Have Never Seen One
Deric ties the gap to incentives, not dishonesty. "Understanding the incentives... for why people are telling you certain things" is, in his view, the piece most people skip, choosing instead to go with the advisor they simply like. Most advisors at brand-name firms work inside a structure built around a narrow set of products, and their pay depends on keeping a relationship going, not on defending every dollar of it on paper. That's how the job is designed. It means the document that could be checked rarely gets produced, because nobody further up the chain had to produce one either.
Four Questions That Actually Test for It
Deric points to four questions that separate a plan from a receipt, because each one costs an advisor something to answer honestly:
- In dollars, what were you paid on my account last year, from every source?
- What else did you consider for me and not recommend, and why did you set it aside?
- What assumptions are my projections built on, and what happens if those assumptions are wrong?
- If I take this document to another professional to review, will you help me do that?
A question that costs an advisor nothing, like asking for a copy of the plan, will always get answered without friction. These four don't work that way. That's the point of asking them.
For Californians evaluating a financial advisor, the fastest way to find out which one they actually have is to ask for the receipt and see what comes back.
Feature Image Credit: Jakub Zerdzicki on Unsplash
