John Hiatt with a beautiful song about humility. He respects the facts here and will not put his own desires over hers. You will find Social Distortion, Marvin Gaye and Tammi Terrell, Talking Heads, and Bruuuuuce as you read, too.
There is a place for humanity, humility, and stewardship (HHS) in rendering financial advice. Yes, we advisors have to be good at math (we don’t really have to be - software, you know, but it helps a lot) and skilled in spending planning, investment management, and estate and tax planning, among other things. However, unless we are good at HHS, we cannot render “advice that sticks”. If it does not stick, was it good advice, did we fulfill our duty to you? No. We are, at that point, an expensive waster of your unrecoverable time and of your money.
Ain’t Nothin Like The Real Thing
What is your real thing now? As your advisor, we serve you best when we maintain a relentlessly polite focus on your outcome(s) (although, sometimes, if we truly serving you, we cannot be polite about it, which might just be the most difficult thing we do). This is a combination of the humanity and stewardship aspects of great advice. We need to be thinking about what it is that would allow you to be who you are and at the same time give thought to what your future might be and how to drive best outcome.
If your goal is to exit the constant pressure and long hours that come with being a senior executive, how can we help you do this? We have to dig deep and understand both your driver and what happiness might mean at this point in time.
Is it time to make a complete change in career? If you make a change, to what are you changing? How is it better? What’s the risk we end up with SSDD?
Do you love what you do and at the same time hate the responsibilities you have?
Do you need confidence that you can live on a lower income? Are things so bad that this just doesn’t matter, and we can sort that out later?
Do you simply need to take a breather for a year or two, or a few months, and then get back at it?
Have you lost your faith, whether that be religious, in your chosen profession, or your leadership, and maybe we need to provide a temporary boost (a great one, by E.B. White, can be found here)?
As we dig in, is it just a bad stretch, should we stick with it?
These are all questions about what to do with your most valuable assets - time and brainpower. Where you allocate your money, and how much, to various areas of your life are far more important than how we allocate your investment portfolio. We can always make more money. We cannot yet make time.
We Make Mistakes
I like to think that we are not making errors of commission. We do, however, make them at times. Some years back, we had a client who owned a permanent life insurance policy with significant, built-up cash value. Upon preliminary analysis, it appeared to me that the premiums paid by the client were in excess of the cash value. In normal cases, this results in no taxable gain upon policy cancellation and subsequent release of the cash value. I advised the client that the policy could be surrendered at no tax cost. This turned out to be incorrect. Permanent life insurance policies are somewhat complex beasts, and in this case, there had been a number of previous loans. I should have requested a tax analysis from the insurance company. The client fired us.
Have we, on occasion, not invested a client’s cash for a few months? We have (we always make the client whole by adding earnings they would have received, and we never deduct losses that would have incurred).
Retirement projections are never accurate. They cannot be. The best we can do is provide a range of expected outcomes with probabilities, and we reforecast every year due to volatility of the variables. Some might call this a mistake, in that we failed to predict exactly where the client will wind up. We just call it reasonable. Being wrong would be attempting to be precise in a highly volatile, multi-variate world. That being said, it is damn near impossible to be “right” in this projection.
The way we can best avoid, insofar as it is possible, making material errors is through humility. We lack perfection just like everyone else. The more we:
Know this in our bones;
Are curious;
Ask: “How could I be wrong?;
Look for disconfirming evidence regarding a conclusion;
the better advisors we are.
You make mistakes, too. Of course you do. A human and humble advisor expects your error, accepts it, makes it easy for you to be wrong, and devises means of correcting or offsetting the errors we all make.
“I was wrong” is one powerful statement.
Who Is It For?
Seth Godin loves this question (his blog post on this is here). It is a great way to drive product design and marketing. Who is it for also happens to be one of my favorite ways to maintain stewardship. The work we do is never for us. It is for you, your spouse or partner or spousal equivalent, your children, other family members, your favorite charity. It is for everyone other than us. If we can keep this in our sight, we can hardly ever go wrong for long. We will make mistakes, yes, and they will be made in pursuit of your outcome. We can course correct when we maintain the right outcome. Your outcome.
There is much complaining in this business about compliance. Weird thing to say here, maybe? Well, if you stay focused on doing the right things in pursuit of a client outcome (who is it for?), it is awfully hard to do something non-compliant.
HHS
Real advisors deliver advice that you both can and do use. We have to relate to humans. We need to have the humility to recognize and repair our mistakes and those of our clients, too. Stewardship drives us to maximize what is under our care, to optimize the utility of those who it is for.
Thanks for reading. If there is something you’d like to read about, please let me know. All feedback is a gift.
Sundry
Most moving song I heard this week:
Len Deighton’s Bomber, an historical novel about the bombing of Germany in World War II, is an incredible read. It has several perspectives, and is quite applicable, in a way, to the “bombing” that happens, politically, today.
I did not set out with a goal to read a book per week. Having read 53 so far, it’s kind of cool to have done so with a little headroom.
Watching the herd pile into bonds is kind of fun. As one who believes in diversification, watching the cycle play out, again, is always nice for my confirmation bias.