My friend Neil and I were running hard through a jungle in Singapore when he blurted, “I don’t eat farmed Fish, man!”

Random? Yeah.

But Neil isn’t just some flake. He’s a biologist who was working for a company that provided pharmacological products to fish farms.

Each day, he visited fish farms to offer advice and study the fish as well as the facilities. “Almost all of those farms put profits ahead of people’s health,” he said. “So I don’t eat farmed fish. I only eat fast-growing, small to medium-sized wild caught fish [larger specimens stockpile more mercury].”

He wasn’t saying all fish farms are bacteria-filled dumps. But nobody outside the crowd that believes Bill Gates put a tracking-chip in the COVID-vaccine, believes farmed fish are healthier than wild.

So what’s the wild fish test for the best Financial advisers? Below, I’ve identified (to me) the most important four components:

1. They don’t sell stinky fish: insurance-linked investment schemes. These charge whale-like, hidden fees. Such products also gut investors with redemption penalties for selling before a pre-determined date.
2. They only build portfolios with the wild, Sockeye salmon of the investment world: index funds or ETFs. They avoid all farmed fish products (actively managed funds, private equity funds and individual stocks).
3. They don’t just manage money. They are part of your holistic, financial wellness team. That includes helping you with a budget, advising on estate planning, tax planning, helping with children’s educational planning, assisting with insurance needs… even divorce planning, with respect to advice on splitting assets.
4. They never move your money around based on economic forecasts or performance trends.

If number 4 sounds fishy, let me assure you of its merit. The best odds of success come from creating a globally diversified portfolio of index funds. Then, when you have such an account, don’t mess around.

Unfortunately, most investors (and most financial advisers) don’t understand the “messing around” part. They believe it’s strategic to move money. This hurts their clients’ long-term financial health. But there’s more. Most advisers eat their own farmed fish.

On November 28, 2020, researchers Juhani T. Linnainmaa, Brian T. Melzer and Alessandro Previtero published, “The Misguided Beliefs of Financial Advisers” in The Journal of Finance.

They assessed data from more than 4000 Canadian financial advisers and about 500,000 clients between 1999 and 2013. The two participating financial institutions provided personal trading and account information for the majority of the advisors. Of the 4,688 advisers, 3,282 had their personal portfolios with their firms. The majority of those who didn’t were just starting their careers.

Most of the advisers bought Actively Managed Funds for their clients, instead of index funds. But surprisingly, they did the exact same thing for their own accounts. In this case, fishing from the murky pond didn’t reveal a lack of ethics… just a lack of knowledge.

Assume you had a diversified portfolio of index funds, 60 percent stocks and 40 percent bonds, from 1999-2013. Assume you maintained your target allocation and didn’t mess around. Linnainmaa, Melzer and Previtero found that if you compared your performance to financial advisers who owned 60 percent stocks and 40 percent bonds, you would have netted about 3 percent more each year than the financial advisers earned themselves. Their clients did even worse.

If an extra 3 percent sounds like small fry, check this out.

$100,000 averaging 8% over 50 years = $4.69 million

$100,000 averaging 5% over 50 years = $1.14 million

This was the average performance gap (3% per year) on an equal risk-adjusted basis. That means, if you had a portfolio with 100 percent stock market indexes, and no bonds, and compared your portfolio to the advisers who had 100 percent stock market funds, you would have also beaten them by about 3 percent per year.

The high fees of actively managed funds were part of the problem, but not the whole problem. The advisers also chased past winners. If a fund was doing well, they jumped on board. And, as is usually the case, actively managed funds that perform well during one time period typically lag the next. That’s why the advisers’ personal money, and their clients’ money, underperformed by at least 3 percent per year.

The best financial advisers don’t do this. They follow a strict code. They use an evidence-based strategy, sticking to a consistent allocation with a globally diversified portfolio of index funds.

They never trade in and out of funds based on recent performance. They never alter a portfolio’s allocation based on speculation. And most importantly, the good ones know almost as much about human psychology as most therapists.

Would your financial adviser pass the fish farm test?

Toss anyone back who doesn’t.