We‚re All Human

Late last October, I had the opportunity to attend a wealth management conference in Santa Fe, N.M., sponsored by Thornburg Funds. The folks at Thornburg have the ability to not only put on an excellent meeting, but do so in a spectacular setting.

One of the speakers, Rick Adkins of The Arkansas Financial Group in Little Rock, touched upon a subject many of us ignore all too often. He complained of the financial planning profession‚s unfortunate habit of "eating its young," or how professionals who have an honest disagreement about a serious issue lying somewhere along the spectrum of specialization end up savaging each other and personalizing what should be a professional matter of difference.

While Rick‚s metaphor may have exaggerated this problem, he didn‚t miss by much. To be sure, financial advisors aren‚t the only ones to become excessively passionate about subjects they care about. Just look at the poisonous tone that our nation‚s political debates often degenerate into.

Adkins‚ fear was not simply that some professionals take passionately held beliefs about anything, from retirement planning rate of return assumptions to fees and commissions to the best way to rebalance portfolios, and turn them into virtual civil wars. It was the impact this has on young people entering the profession. It shouldn‚t be surprising if many get turned off and tune out, or simply become afraid of joining in a debate for fear of getting vilified.

The simple fact is we are all human and we all make mistakes from time to time. One reason people in this business sometimes get so shrill about their differences is because there is so much at stake.

In the financial advice profession, serious mistakes can cost clients major chunks of their life savings. Intelligent, honest people sometimes are wrong. That‚s one reason why most advisors place so much emphasis on diversification and risk management.

At the same time, excessive risk aversion can be equally debilitating. People can make a lot of big financial mistakes and still do very well. Just read one of Peter Lynch‚s books on investing.

But advisors are sometimes asked to walk the scariest tightropes imaginable. We‚re not talking about the temptation to earn a huge commission; some choices are much more perplexing.

A professional once shared with me a situation he was presented with that illustrates this challenge. A couple in their early sixties called for an appointment to ask whether the husband, who was about to retire, should take the single or joint-survivor option with his sizable pension. His wife was recovering from serious cancer surgery but her long-term prognosis was not optimistic, while his health appeared to be fine.

For reasons he is still not certain about, he recommended the joint option providing a lower pension for as long as
either spouse lives. As fate would have it, the wife recovered and the husband died of a heart attack one year later. Years later, he acknowledged that recommending the single payout option was equally viable.

Because advisors have so much at stake in what they do, it‚s easy to understand why professionals get so passionate about their work. As one domestic diva would say, that‚s a good thing. But because there is so much at stake, it‚s even more important to step back from the intensity of the moment and place things in perspective.

Evan Simonoff
[email protected]