In Christopher Moore’s tongue-in-cheek book Lamb, The Gospel According to Biff, Christ’s Childhood Pal, the author describes the teachings of the Tao. “The three jewels of the Tao: compassion, moderation, and humility.” The book alludes to Balthasar, one of the Three Wise Men, as having said that “compassion leads to courage, moderation leads to generosity, and humility leads to leadership.”
I would like to spend this column on humility, because in our business, it is one of the rarest of traits and the most difficult to manage.
When it comes to many financial concepts, we know more than our clients. But this is a weakness as well as a strength. When you know something, you are no longer curious. And when you think you know something that you actually don’t, you are acting, to put it kindly, sub-optimally. Many of us came into this field with finance or math backgrounds. Or we crunched numbers as we took our securities licensing or parts of our CFP courses. Math is so comfortable. It is objective, black and white. It inspires confidence because it is emphatic. It is necessary as we produce tax returns or cash flow analyses or safe-spending models. It is always elegant. It massages our egos.
But almost all of what we do in giving financial advice is science, not math. Science is messy. Its purpose is to disprove what we posit. It is about experimenting. Trial and error. It always makes us vulnerable because it opens us up to our fallibility. In science, we are learning from our clients as well as teaching them.
While both math and science are a necessary part of financial planning, our humility comes from science.
With investments, I am wrong every day. I always own something that didn’t do as well as something else. While I believe in mean reversion, not everyone lives long enough to benefit from it. No single client represents the law of large numbers. When clients ask what happens to markets during presidential election years, we have had all of 25 elections since 1925 to make our case. So who really knows?
One of our clients went all in on Tesla when it was trading at around 10% of where it is today. It was almost their entire portfolio. We reasoned, cajoled, begged him to set aside enough money that we could manage so that if something bad happened to Tesla, he would be OK. He agreed. And then he watched his Tesla stock continue to grow exponentially as the portfolio we managed for him grew only normally. He loved our wealth management advice in general, but he felt that our investment advice in particular had cost him millions. It did.
Recently, he blew out of most of his Tesla and invested the rest in a bitcoin ETF and in the software and cloud company MicroStrategy. Impeccable timing. In fact, the timing was so good that we had to let him go as a client because of his self-confidence and his results. We were uncomfortable with what would happen if his hot hand went cold and he hadn’t set aside enough money to be safe. This may not turn out well for him, but in the short-term, neither did working with us.
While this is an extreme example, it still is humbling.
When we set safe spending levels for clients in retirement, we base those levels on four things: the number of years they are expected to live, the amount they spend, their market returns and what kind of legacy they wish to leave. We can then tweak some of these factors according to how important they are. If the client doesn’t care about their legacy, we can tweak everything else so that they die with zero dollars. But longevity is a factor even then. Dying with zero dollars only works if you know the exact day you are going to die.
One of my long-term clients has fought a 10-year battle with cancer, and she’s now in hospice. She and her husband called and thanked us for helping her do what’s possible while she’s still alive. They traveled and brought their adult children and grandchildren on trips that they could not imagine on their own. But she will be dead by age 82, not 95. They could have done even more, yet I had created guardrails that informed their decisions. I am grateful for what she expressed, but I am also sad when I think that they could have created other memories that I artificially stymied because of my worship at the altar of safe withdrawal rates. What I did for her was generally right, but not absolutely so.
Humility means setting up our primary residence in the town of uncertainty. While we may talk about probabilities, most of us still don’t live in the state of uncertainty, we merely vacation there. Humility means we are always acknowledging alternatives and how they could turn out better than what we are suggesting. It also means that we help clients see most decisions as experiments, rather than as something right or wrong.
One of our clients had a debilitating stroke, and his home no longer accommodated his needs. He and his spouse moved into a graduated living facility where they could get care. When his condition improved, they went to Mexico where they could live less expensively and, in their opinion, receive equivalent care. Last year they spent 15% of their beginning asset value, though the markets left them with slightly more money at year’s end.
They had been talking about selling their home in Minnesota and buying a smaller place there—as well as a home in Mexico. Since they are in their mid-70s, we talked about how likely it would be that they run out of money if they live another 15 or 20 years. We settled on them renting a year-round place in Mexico and visiting Minnesota for just a couple of months in the summer. No one could have foreseen their current situation, and we don’t know how long it will last. Running out of money was their biggest worry, but they chose to ignore it as they dealt with the husband’s recovery. Now they feel ready to face it.
So to recap, we’re advising them to do something they don’t want to do so we can keep them from running out of money—we’re experimenting with the rental idea to give them more options. If the husband dies tomorrow, we might wish we had done something different. There is zero chance we will get this decision perfectly right. And I also have to ask myself: Did I inadvertently tether them to a fear their money will run out?
As we work on the sustainability plan at our own firm, Accredited Investors Wealth Management, I am confronted constantly by my own need for humility. Our next generation of leaders are exceptional, and very different from my co-founding partner, Wil Heupel, and me. Some of what they are doing is different from what I would do. How do I handle that? Where do I step in, step up or step out? How do I wrestle with the reality that our newer employees are concerned more with the impressions they make with the current managing partners than with me, and how will I deal with it if my ego gets bruised? How do I respond when I perceive the managing partners’ egos sometimes becoming an issue? How do I have more grace, a byproduct of humility?
When I struggle with my own ego, I try to remember that humility stems from an acceptance that outside influences were important in my life. I certainly had something to do with the good outcomes in my life, but the final results have probably been shaped by thousands of people and things like luck, faith and happenstance. It was never all about me. Compassion and moderation are critical to a life well-lived, but I think humility makes the other two possible.
Ross Levin is co-founder of Accredited Investors Wealth Management in Edina, Minn.