I’m not sure how many of you LOVE writing blogs – I enjoy it but find it very time-consuming.

 

So, this time I am delighted to share a blog post by Carl Richards that was originally published in Morningstar Magazine. Carl has a real talent at explaining the relationship between feelings and money. In addition to Carl’s insights which are always thought-provoking, he has saved me that most precious of commodities – time. Thank you on both counts Carl!

 

You can find out about Carl’s work by visiting his website https://behaviorgap.com (with apologies for the U.S.spelling!). I hope you enjoy this post by Carl.

 

Ian Cooke
Private Client Manager

 

I want to share something I created, so let me tell you about what I call “The Big Mistake.” Your financial adviser can really help you avoid some critical errors.

 

In late 1999, a close friend of mine was set to sell his business and retire after 30 years of incredibly hard, but successful, work. As part of this process, he was debating what to do with the profit from selling the business. He took a look at how his different investments were performing to see where it made the most sense to put the money.

 

A portion of his portfolio included one of the now infamous technology funds. No surprise my friend’s investment was doing very well at the time. The other half of his portfolio was managed by a guy focused on value stocks, and it had performed poorly in comparison to his growth funds.

 

Convinced that the rally would continue, my friend had his advisor move all of his value-based investments and the profits from selling his business into his growth funds. He made this move at the end of 1999. Anybody remember what happened to tech stocks only a few months later in March of 2000?

 

Even now, years later, my friend, who was all set to retire, is still working.

 

Many investors can afford little mistakes, like using a small portion of their savings to try day-trading or buying a particular stock because their brother-in-law knows a guy who knows a guy. But my friend, who I know to be very smart, made what I call “The Big Mistake.” For most investors, it’s a death sentence and all but impossible to recover from.

 

Specifically, I’m talking about buying high and selling low. Few decisions can wipe out as many years of good behaviour as fast as succumbing to this temptation. So, given the seriousness of The Big Mistake, I believe it’s an advisor’s primary job to prevent clients from making it in the first place.

 

I know that sounds like a huge task—maybe even an impossible one. But it’s what your adviser signed up for when you opened the door to clients.

 

Otherwise, how do you look that 50-year-old client in the eye after you say nothing when he begins heading down the path to his own Big Mistake? Of course, we can’t force people to not go down that path, but if we aren’t using every ounce of persuasion to convince them otherwise, then it doesn’t really matter how many small mistakes we help them avoid.

 

Investors can do things like fail to rebalance on time, own a mediocre investment, or be a bit tax inefficient. These are all mistakes people can survive and still reach their goals. However, it’s our calling as an industry to make sure we help our clients get the big stuff right. Much like a doctor’s oath to do no harm, the first thing you must do as an advisor is to help your clients avoid The Big Mistake for their lifetime. Even if that’s all you do, you’ll still have earned every penny they pay you!

 

For example, let’s pretend another time comes along that looks a lot like 2007, and a client says, “I think I should go all-in on real estate.” You don’t say, “Sure, that’s a great idea,” even though you’re thinking, “What a horrible idea.” Instead, you say, “I think that’s a Big Mistake and here are the reasons why.”

 

Clients may not realize it at first, but they need their advisors to be a barrier between themselves and buying high while selling low. It’s time we accept this responsibility and commit to showing clients why it’s so important to avoid this temptation. Otherwise, there will be plenty more people like my friend, still working years after they thought they’d already be retired.

 

That’s not acceptable to me, and I don’t believe it’s acceptable to you.

 

We must first and always be the thing between our clients and The Big Mistake.

 

Carl Richards

 

 

 

 

 

 

 

 

 

 


 

 

Disclaimer

Metis Ireland Financial Planning Ltd t/a Metis Ireland is regulated by the Central Bank of Ireland.

All content provided in these blog posts is intended for information purposes only and should not be interpreted as financial advice. You should always engage the services of a fully qualified independent financial adviser before entering any financial contract. Metis Ireland Financial Planning Ltd t/a Metis Ireland will not be held responsible for any actions taken as a result of reading these blog posts.

Disclaimer


Metis Ireland Financial Planning Ltd t/a Metis Ireland is regulated by the Central Bank of Ireland.


All content provided in these blog posts is intended for information purposes only and should not be interpreted as financial advice. You should always engage the services of a fully qualified independent financial adviser before entering any financial contract. Metis Ireland Financial Planning Ltd t/a Metis Ireland will not be held responsible for any actions taken as a result of reading these blog posts.