Does Your Financial Planner Really Need to be Local?

Bank tellers at the National Bank of Vanuatu on Malekula island waits to serve a customer.

Is technology making them a dying breed?

“They usually have two tellers in my local bank, except when it’s very busy, when they have one.”
–Rita Rudner

I recently attended a seminar about the state of the Fort Worth and Dallas housing market, put on by the real estate editor of the Dallas Morning News. He was talking about how demographic trends mean that, for at least the next few years, the real estate market in Fort Worth and Dallas should continue to grow at a remarkable clip.

One of the driving forces behind his projected growth in prices was the shortage of houses. The biggest issue that builders were facing was their inability to find enough manpower to man their crews to actually build.

He cited one statistic from the Census Bureau that really struck home.

Plumbing is one of those professions that really does require a local presence. Sure, you can look on YouTube for videos of how to send a plumber’s snake down the drain, but if you’re not handy, like I am not, then once the very basic measures are done and there’s no solution, you’re calling a plumber.

Furthermore, a plumber can’t really work remotely. It would impractical for you to set up FaceTime or Skype with a plumber in, say, India, shine a flashlight under your sink, and have him tell you which bolts to loosen and how to seal the PVC pipe. It might be possible to fix your problem this way, but you’d trade hours and hours to save a few bucks, a horrible value on your time.

A lot of people think the same thing about their financial planner. Yes, I am a Fort Worth financial planner, and I do have some local clients, but, off the top of my head, I’d estimate that less than 20% of my clients are actually from Fort Worth or Dallas.

Your Financial Planner Can Be Anywhere


Continues Below




There are two main components to having a successful relationship with your financial planner.

Trust is developed in a variety of ways. In-person, that trust usually occurs through both verbal and non-verbal behavior. Body posturing, facial expressions, and tone all contribute to the actual words exchanged in a conversation, building up trust over time. A second aspect of trust building is actually delivering on what is promised. If I make a promise to call you at 5:00 PM on Tuesday, if you hear the phone ring at that time, and it’s me on the other line, then you’ve increased your trust that I will do what I tell you I am going to do.

Planners often like to use other inferential mechanisms of conveying trust. They have nice offices. They have pictures of their families. They have plaques on the wall. They have fancy brochures. All of these are meant to convey to you that you can trust them, because, hey, if they weren’t good, how could they afford all of that fancy furniture in the spacious office?

Online, many of those cues are missing. However, as the University of Baltimore-Maryland’s Jinjuan Feng and her team showed, it is possible to replicate that trust-building online.

There are several aspects to trust building when the relationship is built by people who are not in the same physical location:

  • Delivering on a promise. The first and easiest way to build trust is to do what you say that you are going to do. When I have a planning engagement with my clients, I almost always break that engagement down into phases. The first phase entails the things I think that you should do right away. It serves two purposes. First, you really should do the things that I am recommending, as they’re often easy to do and have a significant impact in helping you achieve your financial goals. Secondly, it gives us a quick win. You can determine whether or not I am a) competent and b) trustworthy.
  • Empathic accuracy. This term simply means do I understand what you’re going through and can I respond appropriately? For example, if you say “saving money is tough,” and I respond with “saving money is a piece of cake!” then I have not shown empathic accuracy. But, if you talk about the stress of deciding whether or not to sell your company, I can empathize with you because I’ve experienced it myself.
  • A supportive response. This is the carrot or stick approach. Most people respond much better to a carrot (“you can do it!”) than to a stick (“missed your budget by a dollar? Drop and give me 100 pushups!”). There are times when we all screw up in our financial lives. Understanding and responding appropriately helps build trust that we’ll work well together. That’s why I only choose to work with people that I like and feel like I have a little connection with. I tend to use the stick approach much more when I do not care about someone, which Feng’s research shows is the wrong approach in online trust-building.

Another aspect of trust building online, according to Feng’s team, is the use of video and audio. Fortunately, technology has evolved to the point where we can have video calls for free. Whether through Skype, Google Hangouts, or FaceTime, it’s easy to have us see each other when we discuss plans. That video conference allows a significant part of the non-verbal communication that would normally happen in an office setting to occur, which also builds trust.

Is financial planning local?

There are two potential issues with financial planning that require local knowledge.

Fortunately, neither of them actually requires a planner to be in that location.

The first is taxes. State and local taxes can affect your financial situation, both in the income tax (and other taxes) that you pay now and in the estate tax you may have to pay later.

The second is real estate. The truism that all real estate is local truly does apply, and knowing the lay of land for one neighborhood against another is important in choosing where to live and invest.

However, for the first issue, taxes, all of the information is readily available on the Internet. It’s not the specific numbers that matter as much as the approach. Plugging in the numbers is a simple matter, but it’s the knowledge of how they affect your plan that is crucial.

The second issue, real estate, is different for a financial planner than for a real estate agent. As planners, we are concerned about cash flow, property taxes, depreciation, and return on investment. We don’t care about whether or not the color scheme works well with wood floors. That’s what a real estate agent cares about. Therefore, proxies for growth, like Zillow, demographic studies where necessary, and intelligent modeling are what count with regards to real estate. We leave comparisons of one neighborhood to another to a real estate agent who should have boots on the ground.

While it would not have been feasible 20 years ago, improvements in technology, as well as understanding how trust is built make it very reasonable for a financial planner to be located in a completely different state than his clients.

If you still think that you should walk into some fancy-pants office to work with a planner, that’s your choice and your decision. However, it is not a necessity.

Do you need to see a planner face to face, or are you comfortable with technology? Let’s talk about it in the comments below!

About Jason Hull, CFP®

Jason Hull, CFP®, is the Chief Technology officer of myFinancialAnswers, an online comprehensive financial planning service.

Close