Prior to reviewing the specifics of these steps, it’s extremely important to step back and review some basic characteristics about the true nature of risk. These characteristics aren’t always obvious, however they are key to demystifying and simplifying risk, and to better understanding what’s really going on.
1. Understanding “Risk” Basics — How Risk Really Works — What’s Really Going On?
Lessons from Our Risk/Threat Biology
A. Work With…Not Against…The Most Successful Risk Management System Ever
We humans have as standard equipment, hardwired into the very fiber of our being, the most powerful and successful risk/threat management system ever invented. In addition to all its other capabilities, our innate risk management system has the priceless flexibility to learn and adapt to new and evolving risks.
· Unfortunately, animals like squirrels, skunks, cats and dogs that we often see “flattened” by cars, lack our critically important human ability to learn and adapt to the “new” risks posed by the accelerating pace of change of our high-tech, super-connected and interconnected, information overloaded, more complex, increasingly less certain world.
We have within us the most unbelievably powerful, highly sensitive, unconscious and automatic threat detection, assessment, monitoring and risk response system ever devised. It’s been developed, improved and refined over 100,000 years by the harsh demands and “survival of the fittest” realities of an unforgiving world, that’s always testing us.
Our risk management and response system includes almost every cell in our bodies from all five of our senses, all our organs, digestive and excretory systems, nervous system, thermoregulation, musculature, hormones, circulatory system, lungs, heart, plus the brain in our head and the even “older brain” in our gut. In addition, almost all of this incredible, fully integrated threat response system operates without us ever even having to think about it.
As financial advisors, we and our clients simply can’t ignore our incredibly valuable, innate risk management system, not understand its workings, minimize its role/importance or fight against it…otherwise our job will be much more difficult than it needs to be, and our clients will be less well served.
As professionals, not understanding, respecting, working with, and utilizing it will insure that we’ll continue to be frustrated by our clients’ seeming irrational behaviors, self-inflicted risk/reward decision-making errors and our inability to know or understand why.
If, however, we understand how this amazing risk management system works, help our clients to understand it and prepared for its manifestations when investing, we’ll all benefit greatly. By incorporating and preparing for this impressive system’s normal workings in our financial, investment and risk planning, client communications and ongoing risk/reward decision-making processes, we’ll do a much better job for our clients. We’ll build their confidence and trust in both themselves and in us more quickly. We’ll also add exceptional additional value to our professional services, and attract more business more easily, as a result.