No sooner had my new CD program, Nick Murray on Managing Investor Behavior, been released than I received, within the space of a day, two similar inquiries-one from a "former" and one from a current CPA. These inquiries were, in the larger sense, continuing evidence of how very badly accounting, engineering and other technical disciplines prepare one for a career in personal financial advice. (Indeed, in 40 years in the business, I've personally known only one brilliantly successful personal financial advisor who came from an engineering background: Len Leetzow of Smith Barney in Sarasota, Florida.) But in the specific, narrow context of this essay, the two questions I received from CPA types highlighted, for me, the dangers of a crippling dependence, on the part of technically-oriented people, on statistical evidence as a form of persuasion. Simply stated, the more heavily armed you are with statistical demonstrations of your essential theses, and the more reliant on those "proofs" you are in your interactions with prospects and clients, the less likely I believe you are to forge lasting relationships built on trust. And, failing to found your relationships on trust rather than on "evidence," the more your practice is built on sand, and the less likely it is to endure and prosper. If this thesis seems counterintuitive to you-if your instinct is to think that the more you can demonstrate factually/statistically, the more likely you are to succeed-then, regardless of your background, you have the disease whose pathology I seek to illuminate today. Let me begin by recounting the point I made on the CDs which both my CPA interlocutors pounced on, each in his own way. Indeed, it is the text for the whole three-CD, three-and-a-quarter hour sermon, and it is the awful disparity between the long-term return of the average equity mutual fund and the return earned by the average equity mutual fund investor. I cited in passing the juxtaposition I had seen some time ago: that in the 20 years through 2004, Lipper said the average equity fund, with dividends reinvested, had returned 10.7%, while the average equity fund investor had, according to DALBAR, earned 3.7%. That awful spread seemed (and seems) definitive to me by virtue of the fact that it can only be explained behaviorally. That is, if you're surveying all the equity funds, and every dollar that went in and out of those funds for 20 years, all statistical anomalies of selection and timing are leached out, and you're left with only one possible explanation: inappropriate behavior by the investor. (If you're interested, the next three hours of the program are devoted to forging the advisor's ability to close that terrible gap with behavioral coaching as a value proposition in and of itself. But I digress.) The two inquiring CPAs seized on this marvelous dichotomy, each in his own wonderfully wrong-headed way. The first guy asked: Why would you contrast the return of the average fund investor with the return of the average fund? Why wouldn't you compare it to the return of the S&P 500 index itself, since that gap is even larger. He was unconsciously saying: the larger the gap, the more convincing the argument, and the more likely I am to be believed when I make that argument. I answered that I believed the exact opposite to be the case. The average fund and the Index are apples and oranges. Moreover, everyone knows he can never get the exact return of the index-that even if he bought only index funds (something I would not wish to paint anyone into the corner of doing), he could only get the return of the index less fund expenses. In other words, in reaching for a larger investment/investor gap, I would be weakening rather than strengthening the argument by drawing people's attention to a newly introduced inconsistency. And by the same token, by contrasting fund investors with fund investments, I feel I'm strengthening the argument (even at the cost of a "smaller" gap) because, while everyone knows he could never get the exact Index return, everybody intuitively admits, in his heart of hearts, that he might easily have owned the average fund(s). Please do not let the internal logic of my response, such as it is, draw your attention away from my essential point. Which is, of course, that by trying to arm himself with an even "stronger" statistical argument-by eating two cans of Popeye's magic spinach instead of just one-the poor benighted CPA thought he was making himself stronger, in the sense of being more believable because he could "prove" more. In fact, all appeals to intellectual "proof" instead of to emotional trust weaken rather than strengthen the advisor. The second inquirer took care to identify himself as a "former CPA," and then demonstrated once again that there is no such thing-that once the needle of dependence on numbers goes into one's arm, it never comes out. He asked to be referred to the "websites" and/or "links" which would allow him to see with his own eyes what he called "your numbers," so that-get this-he could then adapt them into his own value proposition. Note the multiplicity of symptoms with which the pathology presents itself, here. (1) While repeating that the numbers come from Lipper and DALBAR, he characterizes them as mine, and attempts to make me responsible for them, or at least for demonstrating them to him. (2) His question is premised on the assumption that my word alone is insufficient-that I might have misunderstood or even misrepresented the juxtaposition of the two numbers-and that (3) only if and when he has seen them can he incorporate them into his value proposition. Get this: My word-on a presumably carefully researched product like my CD program, on which my reputation at least partially rides-is insufficient for him, and then, I'll bet you anything, he is absolutely stunned every time his word isn't good enough for his prospects. This, to me, is the heart of darkness-the essence of the "proof" pathology. It says, "I can only convince people of that which I can prove factually/statistically." And it is thus, in the fullness of time, a one-way ticket to Palookaville. Nothing but his own unhealthy dependence on the narcotic of "proof" could have prevented the second ("former") CPA from saying to the very next prospect he met, "There's very convincing evidence that, in the long run, the average fund investor gets only about a third of the long term return of the average fund-and that the problem lies in inappropriate behaviors which I've made it my mission to keep my clients from making. That's my job; that's what I do." How does the statistical argument "prove" that the prospect should trust the advisor to control his tendencies to chase the hot dot at the top, panic out at the bottom, throw too much money at one "new era" idea, or any of the other great behavioral mistakes that are responsible for 10.7% turning into 3.7%, or whatever that juxtaposition happens to be? Does the extent of the juxtaposition even matter? If the average fund did 10% while the average investor did half that, instead of a third, would the argument for the life-saving help of a behavioral coach be somehow weaker? Statistics are like any mood-altering, addictive substance. They feel great the first time or two they win an argument for you. Then you find you need more and more of them to convince people of the same things. Then you can't function without them-you don't even know how to ask people to trust you anymore without some statistical crutch. And then, in the end, no one trusts you no matter how many statistics you command-and your practice dies. Also, like all other such substances, remember: It is much easier to keep off a drug than to get off a drug. Even the recreational use of statistical "proofs" can lead to something you can't control. Don't ask any number, or any accumulation of numbers, to win your prospects' trust. They can't, and they won't. Belief is what inspires belief, and the only sure path to trust is trustworthiness. © 2007 Nick Murray. All rights reserved. Nick Murray has published a program on three CDs containing all of him work on behavioral modification as an advisor's value proposition. The program is called Nick Murray on Managing Investor Behavior, and is available at