Telling competence from confidence when choosing advisers

Sooner or later, every business faces a decision it has never made before: the first acquisition, the first export market, the first major investment in automation, the first serious dispute, the first time raising outside capital. It has to buy judgement it cannot easily evaluate: from an accountant, a lawyer, an engineer, a consultant, a broker or an industry specialist. And the one signal that is free to observe is how certain the adviser sounds.

Confidence is cheap to produce and expensive to verify. Competence is the opposite. Businesses that do not test for competence tend to buy confidence and believe they have bought expertise. There is a second, less visible cost too. Most owners can name a type of adviser they will not use, usually because of one bad experience, often years ago and with a different specialist. The advice that would have prevented a loss is never sought, so the loss never appears as a cost of that prejudice.

This article explains why buyers so often choose confident advisers over competent ones, how to be clear about what you are actually buying, questions that reveal competence in a first conversation, the different roles advisers play, and how to stop old experiences ruling out help you need. It is general guidance on selecting advisers, not a substitute for professional advice on any particular matter.

Why confidence wins

Three habits do most of the damage, and none of them is foolish.

Fluency is mistaken for expertise. An adviser who answers immediately, clearly and with an example appears to know the answer. Often, that speed shows how many similar situations they have seen, not how well they understand yours.

Similarity is mistaken for relevance. Professions are far more specialised than outsiders realise. A commercial lawyer is not a construction lawyer; a tax accountant is not a valuation specialist. The mistake runs both ways: engaging the wrong specialist because the title matched, or ruling out a whole profession because of one bad experience with an unrelated specialist.

Buyers want certainty. Psychologists Irving Janis and Leon Mann described how people under the stress of a difficult decision tend to avoid it or to talk up their preferred option to relieve the discomfort. A confident adviser provides that reassurance. Nothing dishonest needs to happen; the market simply rewards advisers who give buyers what they want to hear.

Be clear what you are buying

Three quite different things are often bought under the single word “advice”:

They need different people, durations and success measures. An engagement scoped as advice but managed as capacity tends to produce a large invoice and no decision. One scoped as capacity but expected to leave skills behind tends to frustrate both sides. Name which you are buying in the engagement letter.

Organisational psychologist Edgar Schein drew a related distinction between the expert model, where the client buys an answer, and process consultation, where the helper improves the client’s own ability to diagnose and act. Both are legitimate. Confusing them is one of the most common causes of disappointing engagements.

Know your own gap first

Before approaching anyone, write down what you actually need: the decision to be made, what you already know, what you do not, and what you need to be able to do afterwards. An adviser engaged against a vague request produces vague advice. Writing the need before naming candidates also stops the choice being shaped by whoever happens to be available.

Questions that reveal competence

Competence shows itself in behaviour that is hard to fake under questioning. A competent adviser tends to:

• narrow the question before answering, and often reframe it, because the question a client brings is rarely the one that decides the outcome;
• say what they do not yet know and what would need to be established;
• describe the weaknesses of their own recommendation;
• separate established practice from personal judgement without being asked.

A merely confident adviser answers immediately from a fixed position, generalises from past successes without checking whether the conditions are the same, and rarely volunteers what would prove them wrong.

Six questions help in a first conversation:

Two further tests are revealing. Ask the adviser to argue against their own recommendation for a few minutes: a recommendation can be rehearsed, a genuine counter-argument cannot. And ask what they would need to see in the first two weeks to conclude the engagement should stop.

For references, ask for one from an engagement that did not go well, or a client who decided not to proceed. Every adviser’s volunteered references are chosen to impress.

Three roles advisers play

Advisers in a business’s circle tend to play one of three roles:

• Honest advisers tell the owner uncomfortable things about the business and how it is run.
• Technical experts have depth in a discipline the business lacks.
• Connectors know the market and open doors.

All three are valuable. The problem is usually the mix. Connectors produce quick, visible returns, such as an introduction or a meeting, which are easy to justify. Technical experts cost money before they add value. Honest advisers produce discomfort, which falls first on the person who engaged them. So many owners end up surrounded by connectors, with plenty of access and very little challenge, which is the opposite of what a first-of-its-kind decision needs.

A five-minute check: list your current advisers and mark which role each plays. Then ask when any of them last told you something you did not want to hear, and what happened next. An honest adviser is useful only if the business can hear the message. Where unwelcome advice is ignored or resented, honest advisers either soften into connectors or quietly leave.

Old experiences become hidden rules

Ruling out a whole profession because of one bad experience is a supplier decision made on a sample of one, often from a specialism you will never need again. In any other purchase it would be questioned. With advisers, it passes as experience.

Consider a manufacturer that stopped using outside lawyers after a costly dispute ten years ago. Today it needs advice on a supply agreement, from a completely different kind of lawyer. The old experience was real; its relevance expired long ago, but nobody has noticed.

A few simple procedures counter this:

• Write down the need before naming any candidate.
• Include at least one candidate from outside the usual circle.
• Write down any category you are ruling out, and why, and have someone who did not share the original experience review it.

Written exclusions can be tested against current facts. Felt ones persist unexamined.

Absorb what you buy

Every significant engagement needs someone inside the business who is responsible for absorbing what it produces, with time to do so. Without that person, the business rents the capability indefinitely, and the price tends to rise as the adviser’s knowledge of the business becomes the scarce asset. A simple register of advisory engagements, recording cost, purpose and what was retained, is often more revealing than reviewing any one engagement.

If you are forming a group of advisers to meet regularly, the setting up an advisory board article covers mandate, membership, meetings and terms. One point is worth repeating here: advisers give advice; they do not hold decision rights or accountability for outcomes. Be clear about that in writing.

Agreements with advisers sometimes include restrictions on working with competitors. In Australia, whether such restraints are enforceable depends on whether they go no further than reasonably necessary to protect legitimate interests, and the law differs between states and is changing. Take legal advice before relying on one. Commercially, long exclusivity can also narrow your choice, because the best advisers often work across several clients; a well-drafted confidentiality clause and a duty to disclose conflicts may protect you better.

A worked example

This is an illustration. The owner of an engineering business with 30 staff is considering buying a smaller competitor, the business’s first acquisition. A contact recommends a business broker who is confident, fluent and has done “dozens of deals like this”. The broker offers to handle everything, from valuation to negotiation.

Before engaging anyone, the owner writes down the need: an independent view of whether the target is worth buying and at what price; due diligence on its finances, contracts and employees; advice on deal structure and tax; and help negotiating. The owner also notes that the business has avoided consultants since an expensive and unhelpful strategy engagement eight years ago.

In conversations with candidates, the owner uses the six questions. The broker answers every question instantly, cannot name a deal that went badly and describes ongoing involvement after settlement. An accountant who specialises in transaction due diligence asks a series of questions before offering any view, explains which findings would make the purchase unwise and offers to train the business’s financial controller in integrating the target’s accounts. A commercial lawyer with experience in acquisitions of engineering firms discloses that she has acted for a competitor in the past and explains how conflicts would be managed.

The owner engages the accountant for due diligence and capability transfer, the lawyer for the contract and structure, and an operations consultant from outside the usual circle for a two-week review of integration risks, a deliberate test of the old rule against consultants. The financial controller is named as the person responsible for absorbing what the advisers produce. The due diligence identifies a customer contract with a change-of-control clause that would have allowed the target’s largest customer to walk away. The price is renegotiated to reflect it.

How this applies to a small Australian business

Small businesses usually engage advisers when something important is at stake and time is short. Practical steps:

• Write down your need before naming advisers.
• Name what you are buying: advice, capability transfer or capacity.
• Use the six questions in first conversations.
• Ask for a reference from an engagement that went badly.
• Check the mix of honest advisers, technical experts and connectors around you.
• Review any category you have ruled out.
• Name someone inside the business to absorb each engagement.
• Check professional registration and insurance where relevant, such as for lawyers, registered tax agents and engineers.
• Get legal advice on any restraint or exclusivity terms.

The buying a business article covers what the accounting means for buyers.

Signals worth watching

• Advisers who always have an immediate answer.
• References that are all glowing.
• Engagements without a clear statement of what is being bought.
• Advice that never leaves capability behind.
• A circle of advisers who never challenge you.
• Whole professions avoided because of one old experience.

Common mistakes

• Choosing the most confident adviser.
• Engaging the wrong specialist because the title matched.
• Mixing up advice, capability transfer and capacity.
• Surrounding yourself with connectors only.
• Letting old experiences become rules.
• Having nobody inside the business absorb what advisers produce.

Frequently asked questions

How many advisers should we talk to before choosing? For significant engagements, two or three is usually enough to compare how they approach the question, including at least one from outside your usual circle.

Is it rude to ask an adviser what would prove them wrong? No. Good advisers welcome it; it shows you are a serious client and gives them a chance to show their thinking.

Should we use the same adviser for everything? Rarely. A trusted general adviser is valuable, but significant or unfamiliar decisions often need a specialist. Your general adviser can help you find one.

How do we know if an engagement is working? Agree at the start what the engagement should produce and by when, check progress against it and, for capability transfer, check whether your own people can now do the work.

What if the honest advice is unwelcome? That is often when it is most valuable. Ask for the evidence, consider it seriously and thank the adviser. Advisers learn quickly whether candour is welcome.

Questions to ask

• What exactly do we need, written down before we name anyone?
• Are we buying advice, capability or capacity?
• What would make this adviser’s recommendation wrong?
• Which roles are missing from our circle of advisers?
• Which kinds of adviser have we ruled out, and why?
• Who in our business will absorb what we are paying for?

Bringing it together

Confidence is easy to display and hard to check; competence shows itself in how an adviser handles questions. Write down your need first, name what you are buying, test candidates with questions about what would make them wrong and when not to engage them, and ask for references from engagements that did not go well. Keep a balanced circle of honest advisers, technical experts and connectors, review any profession you have ruled out, and make sure someone inside the business absorbs what you pay for. Selection decides what you can hear; how you respond decides what you will be told.

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Source: KEVOS notes, drawing on I. L. Janis and L. Mann’s work on decision-making under stress and E. H. Schein’s distinction between the expert model and process consultation. Examples and figures in this article are illustrations. This article is general information, not legal advice.