Adviser Stories: I'm not in the money business, I'm in the human nature business
19 December 2018 | Practice Management
When I first started my career as an adviser, I had a conventional approach. The way I saw it, I managed money, plain and simple. But then I had a lightbulb moment. All the problems that I dealt with day-to-day came from the people who owned the money, not the money itself.
I wasn't in the money business, I was in the human nature business. Humans aren't rational. As an adviser, I'd say I spend 20% of my time on the financial side of things, such as asset allocation and tax considerations. The other 80% of my time is devoted to behavioural coaching – stopping clients from making mistakes.
Everyone has behavioural biases. It's about unlearning the internal noise. Our job is to nudge clients towards better decisions. And sometimes it needs to be not so much a nudge as a shove! You fix future problems by acting now.
Every client has a suitcase of misconceptions that they bring with them. But you don't know what's inside the suitcase until you start talking to the client. Helping clients understand their behavioural biases can be a lengthy process. You might think you've dealt with them all, but then two months later, another one crops up.
When I speak with clients I'm on the alert for behavioural biases that emerge from our conversation. By the end of the meeting if I was writing them all down, I may have a full page. Of course, clients vary in how rational they are, but I've yet to meet a fully rational one.
Clients often want to know what's new or what's working now. But we're not here to entice them with flashy ideas. We're here to tell them what's always worked, one of our key roles is to help them avoid what's working now. Clients tend to focus on the now – we need to nudge them towards a future mindset. The physical client sitting in front of me isn't really my client, it's the person they become.
However, none of this works if you don't have trust. It's crucial that clients trust in advisers. We shouldn't expect clients to understand everything – why would they? We've spent thousands of hours becoming experts at what we do. Clients may not need to be able to understand everything, but they need to trust in what we say.
I run a few businesses now which help advisers grasp the challenge of managing human misconceptions. Many advisers, especially older ones, can be resistant. They still think they manage money, not people. The top 5% of advisers I meet are very aware of behavioural coaching. And that's a smart business choice, because this is the part of financial planning that can't be commoditised.
I think the business of financial advice is in transition. Ten years ago, advisers were only just starting to recognise that clients need a financial plan, even when they say they only want help with one specific issue. Now clients ask for a financial plan of their own accord.
In ten years' time, I think clients will be asking for help managing their behavioural biases. There's a real opportunity here for advisers to get a head start.
Andy Hart, Founder, Maven Adviser.
Vanguard’s Adviser Stories are a series exploring adviser-client relationships.
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The opinions expressed are those of the individual author and may not be representative of Vanguard Asset Management, Limited.
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