As we approach the final weeks of 2023, many of us are already beginning to reflect on this past year and how we want to grow in the year ahead. Whether it is in the form of a New Year’s resolution, a “word of the year” or simply a desired shift in perspective, I wanted to share some advice with our advisor community during this time of introspection.
A few years back, National Public Radio (NPR) ran a series that I loved titled, “This I Believe,” which asked people to share essays describing the core values that guided their daily lives. In that same spirit, I have constructed my thoughts around seven “This I Believe” principles. These tenets are informed by and foundational to my work at the intersection of behavioral finance and financial planning. Let’s dive in.
1. Financial planners are so very needed. When I think about all the statistics regarding financial advice, one thing is abundantly clear: people need financial planners. Only 36% of non-retired adults think their retirement savings are on track, most people in the U.S. live paycheck to paycheck and more Americans are tapping their 401(k) accounts because of financial distress. And, less than conveniently, human beings are wired to routinely sabotage their best interest by ignoring good (financial) advice.
We are sick and advisors have the cure. Studies from Aon Hewitt, Vanguard and Morningstar all found that the value of advice can boost returns at a rate of 2-3% per year. Research shows that those with an advisor report greater peace of mind, higher levels of preparedness and greater readiness for life’s unexpected situations. All of this to say, people are in dire need of excellent financial advice, making the delivery of financial advice that much more meaningful and important to the world at large.
2. Each individual is the most unique thing about their business, and we need to act like it. In the United States, more than 97,000 people hold the CFP designation, and there are more than 300,000 people employed as financial advisors. To succeed, those in our profession must remember that harnessing their unique characteristics is critical to their ultimate success. For some, it’s owning a niche—whether their passion lies in working with dentists or serving airline pilots. For others, it might involve deeply personal attributes, like drawing strength from one's own experiences of adversity or candidly addressing mental health challenges.
Each advisor's unique life journey, including their individual strengths and challenges, shapes their approach and perspective. Embracing these aspects can not only enhance an advisor's empathy and resilience but also allow them to connect with clients on a more personal and effective level. In doing so, financial advisors can find and serve clients who appreciate their distinct approach and expertise.
3. We can only take our clients as far as we’re willing to go ourselves. American existential psychiatrist Irvin D. Yalom once wrote, “Only the wounded healer can truly heal.” This applies to plenty in our profession as well. Many of us entered the world of financial advice because our own money stories are painful. We came here because our families of origin are broken and dysfunctional, and we wanted to write a new narrative around money for ourselves and for the next generation. (If this is you, welcome to the club, you’re just like the rest of us.)
This brokenness is not something to hide behind, but rather something to share as we normalize the joys and pains of the world of money with our clients. Our clients don’t need us to be perfect; they need us to be ourselves. And to do that, it is critical that we have turned the mirror inward and examined our own money stories.
Moreover, there is social psychology to support the argument that our imperfections can actually make us more likable. This is captured by a phenomenon known as the Pratfall Effect, which posits that highly competent people are found to be more endearing when they perform an everyday blunder, as opposed to those who maintain a veneer of perfection. Moral of the story: we will put pressure on ourselves to try and be perfect, thinking that success lies in that perfection, when it really lies in “competent realness.”
4. Finance is a humanity and a liberal art; use it to discover the world. The Pew Research Organization reports that more than a quarter of Americans have not read a book in the past year. Almost 72% of Americans live in or close to the city they grew up in. Meanwhile, the same Americans watch an average of three hours of television a day, amounting to about 21 hours watched per week.
What does this teach us? Human beings, when given the choice, often exhibit a preference for familiar paths and minimal exertion. But if done correctly, a life and career in markets fights all these tendencies. As financial writer Jared Dillian says, “You work in finance, you become conversant in politics, geopolitics, raw materials production, trade, the FDA approval process, venture capital, private equity, and many other things.” Money connects to everything and everyone on the planet in some way; it can be the key that unlocks a whole world of doors for those who choose to use it.
5. The only risk is not taking any. When I first became a psychologist, I had a patient who came to me with six unopened envelopes. The person explained that they had applied to medical school, and that these letters were responses from various admissions offices. However, they were too afraid to open the envelopes for fear of rejection. Essentially, through their best efforts to manage the risk they feared most, this person all but guaranteed failure through avoidance. In the end, they opened the letters, and learned they had been accepted. Sometimes, the greatest risk we can take is not taking any risk at all.
The lesson here is twofold. Firstly, humans are risk averse. Every single thing we ask our clients to do is psychologically hard. We should never forget this or lose sight of the difficulty of what we are asking them to do.
Secondly, we should take it upon ourselves to model taking intelligent risks for our clients by seeking them in our own lives. Think of the most meaningful things that can happen in a person’s life—starting a graduate program, having a child, taking a chance on love, founding a business. Every single one of these actions is rooted in risk and uncertainty. By experiencing and understanding the nature of these risks ourselves, we can better guide our clients through similar challenges.
6. We will never have enough. We know now with a great deal of certainty what makes people happy. And it’s not money, but rather:
• working for something bigger than self
• getting a little better each day
Money can be a vehicle for making each of those things happen, but it is never the primary driver of meaning and joy.
One of the occupational hazards of our work is that money can become too real, too important, and too large in our minds. Years dedicated to mastering financial planning and investment management can inadvertently elevate money to an unhealthy level of importance, often resulting in personal misery.
We must remain clear-eyed about where money plays a role in our happiness and be wary of equating monetary fulfillment with true meaning. Money is neither the root of all evil nor the source of all happiness. By recognizing its proper place, and teaching our clients to do the same, we enable the pursuit of a more fulfilling life.
7. “How” is easy, “why” is hard. While most advisors are highly skilled in financial management and portfolio maintenance, the client’s priority lies in their personal “why.” Research has shown that investors who have a clear mission that informs their investment strategy are more likely to outperform their peers.
It's not uncommon for advisors to mistakenly equate complexity with effectiveness, concentrating on the “how” rather than on the client’s why. We need to reimagine our purpose and remember that one of the most powerful things an advisor can do is to help clarify their clients' values and keep them front and center throughout their financial journey.
Financial planners possess the profound ability to shape lives positively. By supporting clients in defining their “why” and integrating it into their planning, we enhance not only their financial decisions but their overall well-being. Financial journalist Jason Zweig's perspective reminds us that behavioral finance is both a window to view the world and a mirror for self-reflection. As we enter a new year filled with opportunities, let us commit to serving our clients with diligence, honesty and clarity. We have the unique skillset to make a lasting, beneficial impact on our clients' lives and those of their families for generations. Let's use this powerful gift wisely and for the greater good.
Daniel Crosby, Ph.D., is chief behavioral officer at Orion Advisor Solutions.